US stocks closed lower on Friday, with the major indices recording losses for the week. Concerns over the sustainability of artificial intelligence-related expenditures have intensified, weighing on market sentiment and dragging down technology shares. US Treasury yields also declined.
The Dow Jones Industrial Average fell by 406.55 points, or 0.77%, to close at 52,146.42. The Nasdaq Composite dropped 361.70 points, or 1.40%, to 25,520.24, while the S&P 500 index lost 76.08 points, or 1.01%, ending at 7,457.69.
For the week, all three major US stock indices finished in negative territory. The Dow declined 0.93%, the Nasdaq fell 2.9%, and the S&P 500 shed 1.55%.
US Treasury yields fell on Friday as traders continued to monitor escalating tensions in the Middle East. This followed a week of economic data indicating the US economy is grappling with inflationary pressures linked to the US-Iran conflict.
Global chip stocks extended their losses into Friday. Shares of US-listed semiconductor manufacturers and related companies were lower in pre-market trading. The iShares Semiconductor ETF (SOXX) fell nearly 3%, while the VanEck Semiconductor ETF (SMH) dropped more than 2%.
Applied Materials Inc and Lam Research Corp shares declined 4% and 3%, respectively. Intel Corp, KLA Corporation, and Arm Holdings plc all fell around 3%, while Micron Technology Inc dropped over 1%. NVIDIA Corp shares were down 2%.
These declines added to losses from the prior session, which was also led lower by the semiconductor sector.
The SMH ETF is down 6.9% for the week, on track for its third weekly decline in four weeks. The major stock indices have also trended lower this week, with the S&P 500 down 0.6%, and the Dow and Nasdaq off 0.2% and 1.5%, respectively.
The sell-off accelerated in Asian markets on Friday, with chip stocks continuing their slide. The selling pressure also spread to European markets.
In a Friday morning report, strategists at Brown Brothers Harriman noted that investors are "increasingly questioning the sustainability of the current AI capex boom."
They pointed out, "The BIS annual economic report warned that boom-bust cycles have been a feature of past investment booms driven by transformative technologies."
Meanwhile, Barclays strategists appeared unfazed by the tech stock volatility in their Friday report.
They stated, "While tech volatility may persist in the near term, we think the repositioning will ultimately prove healthy, creating more attractive entry points for long-term investors targeting the structural AI theme."
Beyond chip stocks, Netflix Inc was a major drag on Friday, with its shares falling over 11%. This followed the company's second-quarter results, which were largely in line with expectations but featured disappointing profit guidance.
Further escalation in the US-Iran conflict remained a market focus on Friday, contributing to rising oil prices. US West Texas Intermediate crude futures were trading above $80 per barrel, while the international benchmark Brent crude was above $85.
US Central Command stated it had completed a sixth consecutive night of strikes against Iran overnight, hitting dozens of military targets, including logistical infrastructure and maritime capabilities.
Iranian officials claimed on Friday to have launched attacks against US forces in Syria and Bahrain, expanding Tehran's offensive reach across the Middle East.
This follows the breakdown of a fragile ceasefire agreement reached last month, once again disrupting energy shipments through the strategic Strait of Hormuz, which typically handles about 20% of global oil shipments.
Data released Friday by the US Bureau of Labor Statistics showed an unexpected increase in US import prices for June, with prices for goods from China posting their largest monthly gain in over 18 years.
Import prices rose 0.3% month-over-month, as declines in energy prices were offset by increases in other areas. Year-over-year, import prices jumped 7.1%, the largest increase since August 2022. Economists surveyed by Dow Jones had expected a 0.8% decline for June.
The report suggests that AI infrastructure build-out may be contributing to price increases, with costs rising for computers, peripherals, and semiconductors.
The BLS noted that, aside from those areas, industrial and repair machinery also drove costs higher, offsetting a 0.4% decline in fuel and lubricants—a category that had posted a 12.6% gain in May.
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