Tech Stock Rally Loses Steam in Late-Day Selloff: Markets Wrap

(Bloomberg) — The rally in tech stocks took a breather Friday, pulling back from this week’s record highs. AI optimism was countered by President Donald Trump’s warning to Hamas and signs of a weakening economy as a US government shutdown extended into its third day. The dollar slumped.

The Nasdaq 100 fell 0.4%. Palantir Technologies Inc. was among the biggest decliners, the stock tumbled 7.5% after a report that the defense firm’s battlefield communications system was seriously flawed, a claim the company refuted. Despite late-day weakness, the S&P 500 eked out a fractional gain, leaving intact its longest winning streak since July. The broader market gauge has now gone 114 trading sessions without a 5% pullback.

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President Trump warned of stark consequences if Hamas doesn’t agree to his plan to end the war in Gaza. Shortly before markets closed in New York, Hamas agreed to meet some of those terms, including a release of hostages, ahead of a Sunday deadline. During a White House briefing Press Secretary Karoline Leavitt reiterated the administration’s plan to layoff government workers and pull funds from Democratic strongholds, like Portland, Oregon.

While the Bureau of Labor Statistics’ nonfarm payrolls data was delayed due to the shutdown, a number of private-sector indicators out in recent days pointed to sluggish hiring, limited layoffs, modest pay gains and easing demand for workers in September. Separately, data from the Institute for Supply Management on Friday showed the US service sector stalled in September as business activity shrank for the first time since the pandemic and orders barely expanded.

That’s left swaps traders confident the Fed will execute another quarter-point cut in October, despite a data blackout. The dollar notched its worst week since August. The yield on the benchmark 10-year, which helps set a range of borrowing costs in the US, fell more than five basis points across the same span.

The latest round of big-ticket artificial intelligence deals and partnerships initially drove stocks to fresh highs on Friday, including news that Global Infrastructure Partners was in advanced talks to acquire Aligned Data Centers. The deal values the company, a major beneficiary of the AI spending boom, at about $40 billion. In Asia, Japan’s Hitachi Ltd. teamed up with OpenAI on energy and related infrastructure, while Fujitsu Ltd. expanded its collaboration with Nvidia Corp.

Friday’s burst of new partnerships and potential deals came just a day after a share sale lifted OpenAI’s valuation to $500 billion. Equities have climbed to successive record highs this year, with AI optimism adding to bullish momentum from prospects of monetary policy easing and resilient earnings.

That string of records has fueled questions over how far the rally can run. Concerns are growing that valuations look overheated as AI spending has yet to translate into profits.

“While it’s been very difficult to stand in front of this market, storm clouds are darkening, including the late-‘90s-like trends unfolding in tech/AI, a disconnect between Fed rhetoric and market expectations around easing,” writes Vital Knowledge’s Adam Crisafulli. Bears see investors as “very complacent about the shutdown, with most assuming it will be wrapped up in under two weeks, but there doesn’t seem to be substantive movement toward a compromise.”

Among signs that the market is getting frothy: a sentiment gauge compiled by Barclays Plc has been sitting near a level that indicates exuberance. A similar Bloomberg Intelligence measure is back to a “manic” zone that’s preceded lukewarm returns in the past.

While investors are wagering that the billions pouring into the AI sector will eventually translate into profits and extend gains in tech shares, benchmarks are also bumping up against technical levels that often signal a decline is imminent.

Treasury options pricing suggests that the shutdown that began Wednesday will last at least 10 to as many as 29 days, according to interest-rate strategists at Morgan Stanley.

Federal Reserve officials disagree about how much further to reduce borrowing costs after lowering their benchmark rate by a quarter percentage point last month. Chicago Fed President Austan Goolsbee reiterated his view that officials should proceed carefully with interest-rate cuts while Fed Governor Stephen Miran, who advocated for larger cuts in September, said he’d amend his inflation view if housing costs unexpectedly jumped.

In commodities, oil fell below $61 a barrel this week ahead of an impending OPEC+ supply decision, though crude prices were climbing Friday after President Trump’s warning on Gaza.

Gold was on track for a seventh weekly gain, fueled by central bank buying amid falling US interest rates and lingering inflation concerns. And despite all the hype around AI and the surge in chip stocks this year, gold miners have actually been the better bet.

What Bloomberg Strategists say….

“Stocks have pared gains after the latest ISM Services data signaled fading economic activity but seeing persistent inflationary pressures. That’s not a good combination for risk assets, which have been riding on optimism about Fed rate cuts.”

—Tatiana Darie, Macro Strategist, Markets Live

For the full analysis, click here.

Corporate News:

Rivian Automotive Inc. is reworking a key element of its vehicle doors after employees and customers raised concerns over potential safety issues with the current design, according to people familiar with the matter. 3M Co. is considering selling billions of dollars of assets from its industrials operations as it looks to carve out low-growth businesses, according to people familiar with the matter. Applied Materials Inc. shares dropped 2.7% after a $600 million hit to its 2026 revenue. Boeing Co.’s 777X is slated to fly commercially for the first time in early 2027 instead of next year, people familiar with the matter said, a fresh setback to the US planemaker that sets the stage for potentially billions of dollars in accounting charges. Huawei Technologies Co. used advanced components from Asia’s largest technology firms in at least some of its leading Ascend AI processors, a research firm discovered during teardowns. Some of the main moves in markets:

Stocks

The S&P 500 was little changed as of 4:02 p.m. New York time The Nasdaq 100 fell 0.4% The Dow Jones Industrial Average rose 0.5% The MSCI World Index rose 0.2% Currencies

The Bloomberg Dollar Spot Index fell 0.1% The euro rose 0.2% to $1.1744 The British pound rose 0.3% to $1.3486 The Japanese yen fell 0.1% to 147.41 per dollar Cryptocurrencies

Bitcoin rose 1.4% to $122,377.36 Ether rose 0.3% to $4,508.34 Bonds

The yield on 10-year Treasuries advanced three basis points to 4.12% Germany’s 10-year yield was little changed at 2.70% Britain’s 10-year yield declined two basis points to 4.69% Commodities

West Texas Intermediate crude rose 0.3% to $60.67 a barrel Spot gold rose 0.8% to $3,887.11 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu, Cecile Gutscher, Andre Janse van Vuuren, Levin Stamm and Alex Nicholson.

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