Another unexpected shift in the performance of artificial intelligence (AI) stocks resulted in instability for Wall Street on Tuesday. The S&P 500 experienced a 0.3% drop after volatile moves, initially gaining 1% before losing 2.3%. These fluctuations pulled the index further from last week’s record high. Following a similar mix of gains and losses, the Dow Jones Industrial Average increased by 86 points, or 0.2%, while the Nasdaq composite decreased by 1%.
The downturn followed early gains for companies in the AI sector, which turned to losses. For instance, Micron Technology initially surged 4% before dropping 10%, closing with a 1.4% loss. A day prior, the company’s stock jumped 9.9% after a 13.3% dip two days before that. This year, Micron’s stocks have tripled, sparking criticism of their rapid ascent. The recent industry-wide sell-off raises questions about whether AI stocks are set for a prolonged decline or simply going through a period of adjustment due to overenthusiastic investment.
Other major players in the AI market are moving to list their stocks on U.S. exchanges at elevated prices. On Monday, OpenAI, known for ChatGPT, filed confidential paperwork with regulators to initiate a public offering. SpaceX might also launch an IPO later this week.
The AI stock weakness overshadowed some gains from falling oil prices. Nearly 75% of S&P 500 stocks rose as Brent crude oil fell 3% to $91.45 per barrel. Oil prices have been fluctuating amid discussions about a possible U.S.-Iran deal to reopen the Strait of Hormuz, allowing oil tanker traffic to resume. However, oil prices rebounded after former President Donald Trump accused Iran of downing a U.S. military helicopter near the strait, urging a U.S. response. Elevated oil prices have already accelerated inflation, affecting American consumers and increasing global bond yields, which puts pressure on stock prices.
Treasury yields declined as oil prices softened, easing some of this pressure. The yield on the 10-year Treasury note decreased to 4.52% from 4.56%, although it remains above the pre-war level with Iran of 3.97%. This week’s U.S. inflation updates, particularly on consumer prices on Wednesday and wholesale prices on Thursday, are anticipated with interest. Despite high inflation and a strong job market, Wall Street traders widely expect the Federal Reserve to raise interest rates at least once by year-end. Higher rates are intended to curb inflation but might slow the economy and affect investment prices. Increased borrowing costs could deter investment in AI data centers, essential to economic growth.
Meanwhile, decreased oil prices benefited airline stocks as they indicated lower fuel costs. American Airlines saw a 3.6% rise, and Delta Air Lines increased by 3.8%.
J.M. Smucker reported better-than-expected quarterly profits, prompting a 10.4% rise in its stock. The company, responsible for brands like Folgers and Hostess, profited from raising coffee and sweet baked goods prices. This trend of higher-than-expected profit growth has helped drive the S&P 500 to record levels this year.
In another major move, Nuvalent surged by 39.3% after GSK’s $10.6 billion acquisition offer. GSK’s New York-traded shares rose by 1.2%.
In total, the S&P 500 fell by 19.08 points to reach 7,386.65, the Dow Jones Industrial Average climbed by 86.10 to 50,872.11, and the Nasdaq composite decreased by 250.84 to 25,678.82.
Internationally, stock indexes in Europe saw declines, following larger swings in Asia. South Korea’s Kospi index rebounded by 8.2% after a Monday fall of 8.3%, influenced heavily by performance from tech stocks such as SK Hynix and Samsung Electronics.