Stocks Tumble as Year’s Winning AI Bets Take a Hit: Markets Wrap
(Bloomberg) — Wall Street traders took profits on the year’s biggest artificial intelligence winners, dragging global gauges back from the brink of record highs. Longer-dated bond yields climbed.
A disappointing sales outlook from Broadcom Inc. sent the chipmaker tumbling 11% and weighed on rivals, further fueling investor anxiety over AI wagers initially prompted by Oracle Corp. The AI bellwether’s stock drop started Thursday following a forecast for rising capital outlays and a longer timeline to a revenue payoff. The slump deepened Friday on a report of delays to some of Oracle’s data center projects. Shares of companies tied to the AI power infrastructure also slid.
The Nasdaq 100 dropped 1.9% while The S&P 500 fell 1.1% after the index had notched a record close in the previous session. The Dow Jones Industrial Average and Russell 2000 pulled back from all-time highs.
Friday’s profit-taking after stock benchmarks hit new peaks was not unexpected, according to Louis Navellier, chief investment officer at Navellier & Associates.
“The AI bubble is deflating but not popping,” Navellier said. “Heightened concerns on OpenAI agreements may make further gains challenging.”
The selloff put a damper on the ebullience sparked by the Federal Reserve’s third-straight interest rate cut this week. Investors also had to contend with mixed messages from Fed officials after they left their outlook for a single cut in 2026 intact.
Yields on Treasury 30-year bonds rose 6 basis points to a three-month high after Cleveland Fed President Beth Hammack said she would prefer interest rates to be slightly more restrictive to keep putting pressure on inflation, which is still running too high.
Jeff Schmid of the Kansas City Fed also pointed to consumer pricing pressures. Schmid said he was against the central bank’s decision this week to lower interest rates because inflation remains too high and the economy continues to show momentum.
“Judging from the calendar, this could be a day Wall Street takes a breather from its recent feverish pace,” said Joe Mazzola, head trading and derivatives strategist at Charles Schwab. “Major earnings and data are scarce, the weekend beckons, and investors increasingly look ahead to next Tuesday’s jobs report.”
‘Price Worth Paying’
Diversification across geographies and themes is becoming a key consideration. After technology heavyweights drove equity gains for much of the year, concerns about stretched valuations and vast capital outlays have prompted investors to look for opportunities elsewhere.
“Given the set-up in markets, diversification is now the price worth paying to keep you fully invested in equities,” wrote Goldman Sachs’s Mark Wilson. He adds that there are compelling investment stories including Korea, Japan, China or the broader emerging markets.
Meanwhile, strategists at Goldman Sachs Group Inc. expect stocks to notch fresh records next year, citing resilient economic growth and broader adoption of artificial intelligence to support corporate earnings.
The team led by Ben Snider reaffirmed its target for the S&P 500 to reach around 7,600 points in 2026, implying gains of about 10% from current levels. Other forecasters and asset managers share the upbeat view, with strategists at firms including Morgan Stanley, Deutsche Bank AG and RBC Capital Markets LLC also calling for US stocks to rise more than 10%.
Market forecasters are broadly positive on Europe as well, with not a single one of the 17 strategists surveyed by Bloomberg expecting a major decline. Four strategists, including those at UBS Group AG and Deutsche Bank AG, project gains of nearly 13% from Wednesday’s close.
Some are eyeing gains on an even shorter horizon, betting on further advances before 2025 ends as investors rotate into stocks that have so far remained in tech’s shadow.
Robert Edwards, chief investment officer of Edwards Asset Management, expects the S&P 500 to hit 7,000 by year end and the gains to extend into 2026.
“Our clients are far more worried about giving back gains than euphorically targeting even bigger ones. That’s classic Wall of Worry behavior, not late-bull-market stages,” he said. “Concerns about AI valuations, midterm elections, affordability, inflation, and the Supreme Court overturning tariffs are the very bricks the market climbs to go higher.”
With no negative catalysts on the calendar, Karen Georges, a fund manager at Ecofi Investissements in Paris, says many are looking for a Christmas rally. “Investors are keen to buy this year’s laggards, it’s a good time to diversify your portfolio at the moment.”
Bloomberg’s index of the dollar steadied after a two-day losing streak while notching a third weekly loss. In commodities, gold held onto smaller gains while silver pulled back from an all-time high.
What Bloomberg Strategists Say…
“Oracle is an outlier among the major AI stocks as it has run down its cash flow and taken on debt to finance capital spending. If the model is running into trouble already because of difficulties in getting data centers built, that’s bad news for all the companies selling shovels into this gold rush, as well as potentially the cloud giants themselves, which have valuations partly predicated on huge and growing order backlogs.”
—Sebastian Boyd, Macro Strategist, Markets Live
For the full analysis, click here.
Corporate News:
A group of influential Swiss lawmakers proposed watering down the capital demands that the country wants to impose on UBS Group AG, sending shares to a 17-year high. Broadcom Inc., a chip company vying with Nvidia Corp. for AI computing revenue, slumped after its sales outlook for the red-hot market failed to meet investors’ lofty expectations. Lululemon Athletica Inc. shares rallied after the pricey yoga-wear maker boosted its full-year outlook and announced that its chief executive officer would step down after a period of sluggish growth. SoftBank Group Corp. is studying potential acquisitions including data center operator Switch Inc., people with knowledge of the matter said, underscoring billionaire founder Masayoshi Son’s growing ambitions to ride an AI-fueled boom in digital infrastructure. Some of the main moves in markets:
Stocks
The S&P 500 fell 1.1% as of 4 p.m. New York time The Nasdaq 100 fell 1.9% The Dow Jones Industrial Average fell 0.5% The MSCI World Index fell 0.8% The Russell 2000 Index fell 1.5% Cboe Volatility Index rose 6.5% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1739 The British pound fell 0.2% to $1.3365 The Japanese yen fell 0.2% to 155.88 per dollar Cryptocurrencies
Bitcoin fell 2.9% to $90,213.64 Ether fell 5.2% to $3,082.14 Bonds
The yield on 10-year Treasuries advanced four basis points to 4.19% Germany’s 10-year yield advanced one basis point to 2.86% Britain’s 10-year yield advanced three basis points to 4.52% Commodities
West Texas Intermediate crude fell 0.2% to $57.47 a barrel Spot gold rose 0.4% to $4,299.10 an ounce Silver Spot $ fell 2.7% to $61.85 This story was produced with the assistance of Bloomberg Automation.
–With assistance from Andre Janse van Vuuren, Levin Stamm, Julien Ponthus, Jan-Patrick Barnert, Michael Msika, Sagarika Jaisinghani and Ira Iosebashvili.
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