Stocks Finish Sharply Lower as Tech Stocks Slump
Stocks Finish Sharply Lower as Tech Stocks Slump.
The S&P 500 Index ($SPX) (SPY) on Friday closed down -1.01%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.77%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.49%. September E-mini S&P futures (ESU26) fell -1.02%, and September E-mini Nasdaq futures (NQU26) fell -1.51%.
Stock indexes settled sharply lower on Friday, with the S&P 500 posting a 1-week low, the Dow Jones Industrials sliding to a 2.5-week low, and the Nasdaq 100 falling to a 5-week low. The global selloff in chipmakers continued on Friday amid concerns that massive gains fueled by the buildout of artificial intelligence have run too far to justify their elevated valuations. The rout began in Asia, with China's Shanghai Composite falling -3% and Japan's Nikkei Stock Index falling -4% after China's AI startup Moonshot launched its new Kimi K3 AI model, which the company says rivals the strongest offerings from OpenAI and Anthropic PBC, sparking concerns about the industry's spending spree. Losses in the Magnificent Seven technology stocks also weighed on the overall market.
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On the positive side for stocks, the University of Michigan US Jul consumer sentiment index rose more than expected to a 5-month high, and 1-year inflation expectations eased more than expected. Also, energy stocks rallied amid the surge in crude oil prices to a 5-week high.
Friday's US housing news was mixed. Jun housing starts rose +19.0% m/m to 1.427 million, stronger than expectations of 1.310 million. However, Jun building permits, a proxy for future construction, fell -3.0% to 1.367 million, below expectations of 1.403 million.
US Jun manufacturing production was unchanged m/m, weaker than expectations of +0.1% m/m.
The US Jun import price index ex-petroleum rose +0.5% m/m, stronger than expectations of +0.4% m/m.
The University of Michigan US Jul consumer sentiment index rose by +4.9 to a 5-month high of 54.4, stronger than expectations of 51.0.
The University of Michigan US Jul 1-year inflation expectations eased to 4.2% from 4.6% in Jun, weaker than expectations of 4.4%. The Jul 5-10-year inflation expectations were unchanged at 3.3% from Jun, right on expectations.
Hawkish comments on Friday from Cleveland Fed President Beth Hammack were negative for stocks and bonds, as she said persistently high inflation is her bigger concern right now, even as consumer spending holds up and unemployment remains low.
Geopolitical risks continue, as WTI crude oil (CLQ26) soared more than +4% as the US launched fresh strikes against Iran for the sixth consecutive day on Friday, hitting coastal surveillance and air defense sites, military logistics infrastructure, and maritime assets. Iran responded by attacking US bases in Kuwait, Jordan, and Bahrain, with Kuwait saying a desalination and electricity plant were hit, with many power-generation units sustaining damage. The Kuwaiti armed forces said it intercepted 32 Iranian drones targeting "vital" institutions. Crude prices raced to their highs Friday afternoon after Axios reported that the Trump administration notified Israel it is sending more refueling planes to the country, a possible sign that US military operations could expand in the coming days.
President Trump pledged to intensify the bombardment until Iran stops attacking ships in the Strait of Hormuz and agrees to open the waterway. The Wall Street Journal reported that US forces struck multiple bridges to cut supply routes to an Iranian port city and naval base used to support attacks on ships in the Strait of Hormuz. According to RBC Capital Markets LLC, a seven-day moving average of oil flows through the Strait of Hormuz has slumped to 3.9 million bpd from 8.5 million bpd before the collapse of the ceasefire.
Selling by corporate insiders is another negative for stocks. According to EPFR Global Market Intelligence, executives sold $77.6 billion of stock during the first half of this year, the second-highest amount in more than 20 years.
The outlook for strong Q2 earnings, which began this week, is a bullish factor for stocks. Forecasts compiled by Bloomberg Intelligence suggest Q2 earnings may increase by +23%, close to Q1's blowout earnings of +30%, which was more than double the +12% analysts had expected. AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2.
The markets are discounting a 14% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.
Overseas stock markets settled sharply lower on Friday. The Euro Stoxx 50 slid to a 1-week low and closed down -0.84%. China's Shanghai Composite sank to a 10.5-month low and closed down -3.05%. Japan's Nikkei-225 Stock Average fell to a 5-week low and closed down -4.03%.
