Wall St ends lower for the day and week as chip selloff broadens

NEW YORK: Wall Street extended its decline on Friday (Jul 17) as a pullback on stocks associated with the AI boom, which has driven many of the gains so far this year, morphed into a larger risk-off sentiment.

Semiconductor shares, which have led the broader market's move in recent sessions, initially led the selloff, which broadened as the session progressed.

All three major US stock indexes closed lower on the day and posted weekly losses.

The Philadelphia SE Semiconductor Index .SOX logged its steepest weekly loss in over a year, and has tumbled over 18 per cent so far in July. Even so, the index remains up nearly 65 per cent year-to-date, compared with the S&P 500's nearly 9 per cent gain over the same time frame.

The SOX closed 20.2 per cent below its Jun 22 record closing high, confirming the index entered a bear market on that date.

Some investors in the artificial intelligence space have begun positioning for a slowdown in the nearly trillion-dollar spending boom, with some active managers already scaling back their exposure, according to a Reuters analysis.

"It's like the market has chip fatigue," said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. "Chip stocks are down three of the last four weeks, and it's the same worries, the same concerns; those stocks got way ahead of themselves, and now they're coming back to Earth."

Among the Magnificent Seven group of AI-related megacaps, all but Apple AAPL.O dipped, with Meta META.O and Alphabet suffering the worst of it, down 2.7 per cent and 3.2 per cent, respectively.

The Dow Jones Industrial Average .DJI fell 406.55 points, or 0.77 per cent, to 52,146.42, the S&P 500 .SPX lost 76.08 points, or 1.01 per cent, to 7,457.69 and the Nasdaq Composite .IXIC lost 361.70 points, or 1.40 per cent, to 25,520.24.

Among the major sectors of the S&P 500, communication services and consumer discretionary fell the most, while energy stocks were the sole gainers, benefiting from spiking crude prices amid signs of escalating hostilities in the Iran war.

Q2 EARNINGS SEASON GETS OFF TO AN UPBEAT START

Second-quarter earnings season is still in its early days, with 49 of the companies in the S&P 500 having reported. Of those, 90 per cent have delivered better-than-expected results, according to LSEG.

Analysts now see year-on-year S&P 500 earnings growth of 26.0 per cent, in aggregate, up from the 19.2 per cent expectations as of Apr 1, per LSEG.

"It's early in earnings season, but we're off to a tremendous start," Detrick added. "Over the next several weeks, we're going to get a lot more sectors and industries reporting. But so far, the banks have really started us off on the right foot."

Netflix tumbled 7.3 per cent after the company's weaker-than-expected earnings forecast, raising doubts about the sustainability of the content growth momentum.

Uber Technologies dropped 2.1 per cent after the rideshare app announced it would acquire Germany's Delivery Hero in a deal worth nearly US$15 billion.

Intuitive Surgical shares slid 14.2 per cent after the medical device maker kept its da Vinci procedure growth forecast unchanged and warned insurance-plan changes may be delaying patient care.

On the economic front, consumer sentiment increased to a five-month high in July, but single-family housing starts and building permits dipped, and industrial output increased by a meagre 0.1 per cent.

Declining issues outnumbered advancers by a 1.94-to-1 ratio on the New York Stock Exchange. There were 258 new highs and 180 new lows on the NYSE.

On the Nasdaq, 1,717 stocks rose and 3,019 fell as declining issues outnumbered advancers by a 1.76-to-1 ratio.

The S&P 500 posted 48 new 52-week highs and 4 new lows while the Nasdaq Composite recorded 75 new highs and 190 new lows.

Volume on US exchanges was 17.55 billion shares, compared with the 20.87 billion average for the full session over the last 20 trading days.