Most of the U.S. stock market is rising Friday after oil prices eased back to where they were before the war with Iran, but drops for AI stocks are keeping the market in check.
The S&P 500 rose 0.5 per cent after recovering from an early loss of 0.9 per cent. The index at the heart of many 401(k) accounts is still on track for its second losing week in the last 13, largely because of drops for stocks swept up in the mania around artificial-intelligence technology.
The Dow Jones Industrial Average was up 194 points, or 0.4 per cent, as of about noon eastern time, and the Nasdaq composite was 0.5 per cent higher.
After soaring to tremendous heights and leading the market for years, AI stocks been under pressure recently because of worries their profits can’t possibly keep pace with the tremendous rallies for their stock prices. And those drops have an outsized effect because AI stocks have grown into Wall Street’s largest and most influential, giving movements for their stock prices more weight on indexes than others.
Micron Technology’s drop of 3.3 per cent was the heaviest weight on the market, for example. The maker of memory for computers has been a big winner this year, with its stock quadrupling, because the AI boom has created a surge of demand for its products.
But investors saw the downside of that surge Thursday, when Apple said it had to raise prices on laptops and many other of its products by significant percentages to make up for the increases in memory prices. The worry is that such higher prices could ultimately lead to lower demand.
Highlighting the roller-coaster ride that AI stocks have been on, SpaceX briefly dropped below US$149 in the morning, a loss of 2.9 per cent, before pulling higher to a gain of 2.2 per cent.
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After initially selling its stock at $135 apiece in its ballyhooed initial public offering earlier this month, the price briefly soared above $225 within its first few days of trading. Besides rockets, Elon Musk’s company also owns the xAI artificial-intelligence business.
The day’s largest loss in the S&P 500 was a 21.6 per cent drop for Onsemi, which said it agreed to buy Synaptics in an all-stock deal valued at roughly $7 billion.
Stocks got a boost as the price of Brent crude oil, the international standard, dropped 4.5 per cent to $72.13. That’s lower than it was the day before the United States and Israel attacked Iran, which eventually led to the closure of the Strait of Hormuz and the curtailment of oil shipments worldwide.
The easier oil prices helped stocks of companies with big fuel bills, and United Airlines climbed 2.1 per cent.
Health care stocks, meanwhile, were some of the strongest forces pushing upward on the market after a committee of the European Medicines Agency recommended several medicines for approval and the extension for another dozen of their therapeutic indications. That included one for Eli Lilly, whose stock jumped 6.8 per cent.
Besides Lilly, roughly two out of every three stocks within the S&P 500 were rising. But more drops for AI stocks were helping to overshadow them.
In the bond market, Treasury yields eased with oil prices. The yield on the 10-year Treasury fell to 4.37 per cent from 4.40 per cent late Thursday.
It got some help from a report showing that expectations for inflation in the coming year inched down among U.S. consumers to 4.6 per cent from 4.8 per cent in May. That’s still high, but moves downward mean less chance of a vicious cycle where expectations for higher inflation drive changes in behavior that create higher inflation.
High yields in bond markets worldwide caused by worries about inflation have been threatening to slow economies, and they have already sent rates higher for mortgages and other kinds of loans. High yields also hurt prices for investments, particularly those seen as the most expensive. That raises the pressure on AI winners.
Asian stock markets began Friday with sharp drops because of losses for AI winners.
In Japan, a 12.5 per cent plunge for Softbank Group Corp helped pull the Nikkei 225 down by 4.2 per cent. The company is a major investor in OpenAI, the maker of AI chatbot ChatGPT, and a report in The New York Times suggested OpenAI is considering delaying an initial public offering of its stock to next year from the second half of this year.
Such an IPO would give OpenAI the chance to raise more cash to spend on data centers, as well as the opportunity for early investors like Softbank to cash out some of their holdings. But the recent stumbles for SpaceX’s stock and for AI stocks broadly may be a signal of less appetite for big AI stocks among investors.
In South Korea, SK Hynix fell 8.4 per cent, and Samsung Electronics sank 5.3 per cent. That helped pull the Kospi 5.8 per cent lower and trim its gain for the year so far to 99.6 per cent.
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