Reversal. The artificial intelligence selloff finally eased on Friday, but the rest of the market paid the price.
The Dow Jones Industrial Average fell 653 points, or 1.2%. The S&P 500 dropped 0.5%. The Nasdaq Composite dipped 0.2%.
The day's action represented an unwind of yesterday's rotation that pushed consumer staples to fresh highs and sent AI investors reeling. Higher oil prices on Friday didn't help.
That said, the Dow still rose for a third week in a row, while both the Nasdaq and S&P 500 fell for a second-consecutive week.
Things won't get any easier for markets in the week ahead. After Meta Platforms' earnings stoked the latest wave of AI spending fears, next week's reports from Microsoft, Amazon.com, and Alphabet are sure to be subject to intense scrutiny from investors.
"Confidence was shaken this week as the market grapples with the magnitude of debt & equity issuance necessary to finance the datacenter buildout," writes Citi's Scott Chronert.
He argues the market is now punishing both AI spenders and firms viewed as beneficiaries of that spending. Any commentary that casts doubt on bullish AI expectations could spark another big slide for those stocks.
"Too early to discern if this is an inflection point in the AI trade as a whole or simply an unwind of stretched positioning akin to the summer price action," he writes.
The earnings themselves could save the day. Chronert thinks that if cloud revenue growth builds on the strong numbers from the second quarter, sentiment could stabilize. He expects S&P 500 earnings to hit $365 per share for the year and jump to $400 a share in 2027.
He's optimistic: His target for the S&P 500 is 8100 by the end of the year, which pencils in a 6.2% gain with about 10 weeks to go.
Wall Street wouldn't scoff at those kinds of gains.
Watch our TV show on Fox Business Fridays at 7:30 p.m. ET and Saturdays and Sundays at 9:30 a.m. or 10:30 a.m. ET. This week, Mike Silverman, CIO of Cresset, explains why he thinks this is a good time to buy municipal bonds. Plus, investors are fleeing the AI trade and buying consumer staples. Plus, why investors are moving out of AI and into toothpaste and detergent.
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The Hot Stock: Crown Castle +9.1% The Biggest Loser: Bloom Energy -11.2%
Best Sector: Energy +2.5% Worst Sector: Consumer Staples -1.8%
This Weekend's Magazing
The Calendar
Next week will be the busiest on the third-quarter earnings calendar with about one-third of S&P 500 companies set to release results. Verizon Communications reports on Monday, followed by Boeing, Coca-Cola, and Visa on Tuesday. Alphabet, Ford Motor, GE Vernova, Microsoft, and T-Mobile US release earnings on Wednesday, while Amazon.com, Caterpillar, Eli Lilly, Intel, Mastercard, and Merck follow on Thursday. AbbVie, Chevron, and ExxonMobil Holdings end the week with their results on Friday.
The Federal Open Market Committee meets next week on Tuesday and Wednesday, with the customary press conference at 2:30 p.m. on the latter day. There is less anticipation than the previous FOMC meeting in mid-September, as Wall Street is expecting the central bank to keep the federal-funds rate unchanged. But the FOMC and new Fed Chair Kevin Warsh, who has inveighed against forward guidance, has a chance to jolt investors with a surprise rate hike.
The most important economic data to be released next week is the personal consumption expenditures price index from the Bureau of Economic Analysis. The BEA releases that inflation report on Thursday along with third-quarter gross-domestic-product growth.
-- Dan Lam
What We're Reading Today
5 Telecom Stocks That Can Survive the Musk Threat -- and 1 Reason to Buy SpaceX
Anthony Scaramucci on His Smashed Record, the Midterms, and Some Advice for Trump
Moderna's Cancer-Vaccine Leak Spurs Panic Selling. Wall Street Wanted a Cure.
The iPhone Duo Launch Kicks Off a Crucial Few Weeks for Apple
And this week's cover story: What a Democratic Congress Would Mean for Wall Street
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