U.S. stocks declined by midday Friday, with technology shares leading the losses. The Dow and S&P 500 pulled back from record highs as investors continued rotating out of tech stocks into value sectors. Federal Reserve official Anna Paulson suggested room for further rate cuts.
The Dow fell 219.58 points (0.45%) to 48,484.43, while the Nasdaq dropped 386.73 points (1.64%) to 23,207.13. The S&P 500 lost 71.98 points (1.04%) to 6,829.02.
The S&P 500 and Nasdaq were weighed down by Broadcom's 11% plunge, which some analysts attributed to margin compression concerns. Despite reporting $64 billion in FY2025 revenue and citing $73 billion in AI backlog, the stock fell due to lower AI business margins and lack of FY2026 AI forecasts.
Other AI-related stocks including AMD, Palantir Technologies, and Micron Technology also declined, while financials, healthcare, and industrials gained. Visa, Mastercard, UnitedHealth Group, and GE Aerospace led the advancers.
Lululemon surged 10% after announcing its CEO's departure following a year of underperformance. "Today marks another day of value outperforming growth," said Jed Ellerbroek of Argent Capital Management. "There's definite nervousness around AI—not outright pessimism, but caution and hesitation."
The rotation follows Thursday's shift into cyclical stocks and profit-taking in AI-related growth names after the Fed's third rate cut this year. While Visa and UnitedHealth helped the Dow hit a record Thursday, the Nasdaq fell as tech giants like Alphabet and Nvidia retreated.
"Most companies investing heavily in AI are seeing good returns," Ellerbroek noted. "But no sector can outperform indefinitely—this pullback is normal and expected."
The S&P 500 and Nasdaq are down 0.8% and nearly 2% this week respectively, while the Dow remains up about 1%. Small caps outperformed, with the Russell 2000 gaining over 1% and hitting record highs.
Philadelphia Fed President Anna Paulson warned unemployment poses greater economic risks than inflation, signaling potential for more rate cuts. "Inflation will likely decline as we enter next year," she said, calling current policy "slightly restrictive."
Kansas City Fed President Jeff Schmid dissented from this week's rate cut, citing persistent inflation and economic momentum. "Policy remains only mildly restrictive," he stated, preferring to maintain "modest restraint" against inflationary pressures.
Comments