US Stocks Fall as AI Trade Faces Fresh Scrutiny: Markets Wrap

(Bloomberg) — Stocks fell while caution prevailed across most asset classes as traders considered whether earnings justified fresh advances in the artificial intelligence trade and uncertainty swirled around the Middle East.

S&P 500 futures slipped 0.2%, while Nasdaq 100 contracts dropped 0.8%. A strong earnings beat and raised sales outlook from Taiwan Semiconductor Manufacturing Co. failed to trigger fresh gains for the sector that has fueled most of this year’s stock market gains. Europe’s Stoxx 600 was down 0.6%.

Brent crude held above $84 a barrel after the US struck Iran for a fifth straight day and hit a sanctioned oil tanker near the country’s main export terminal. Treasuries slid, with the 10-year yield rising three basis points to 4.57%. The dollar barely budged, while gold headed for its first day of losses in three.

Chipmakers’ leading role in this year’s equity advances is increasingly coming under strain as traders grapple with lofty stock valuations and whether AI hyperscalers are building more capacity than they will need. Investors are also looking for opportunities to rotate to other sectors within the AI trade that will benefit from the global buildout at more attractive prices.

“There’s been a lot of concentration in the market and that means there’s little room for error,” said Richard Flynn, managing director at Charles Schwab UK. “Global geopolitical risk is elevated and so there’s a relative tone of caution fundamentally looking at the macro outlook.”

While chip-related stocks were broadly lower in US premarket trading, technology laggards such as software shares attracted bids. TSMC’s American depositary receipts fell 4.5%. Microsoft Corp. led gains among the Magnificent Seven. UnitedHealth Group Inc. rallied on a profit beat and raised outlook.

“There’s been a lot of rotation within the AI trade, and a small rotation more broadly,” said Toni Meadows, head of investments at BRI Wealth Management. “It’s probably a healthy thing to have consolidation. The further things go, the more stretched they get and then the reaction is bigger.”

Sharp volatility in memory heavyweights drove another steep decline in Seoul’s Kospi Index.

South Korean authorities announced a temporary halt to new listings of single-stock leveraged exchange-traded funds. Many market participants have blamed the products for intensifying swings because of the daily rebalancing flows required to maintain their promised return ratios.

After two days in which softer-than-expected inflation data saw traders dial back their expectations for Federal Reserve interest rate hikes this year, June retail sales numbers will put the spotlight on the strength of American consumers.

Netflix Inc. is on the list of companies expected to report results after the market close.

Corporate News:

Eli Lilly & Co. agreed to buy AtaiBeckley Inc. for as much as $3.8 billion, underscoring growing interest from large drugmakers in the once-fringe area of psychedelic medicine. UnitedHealth Group Inc. raised its outlook for the year and reported quarterly profit well ahead of Wall Street’s views, helping to solidify the company’s earnings recovery after a historic collapse. General Electric Co. raised its full-year outlook and topped Wall Street’s earnings expectations, a sign the world’s largest jet-engine manufacturer is able to sidestep disruptions related to the war in Iran and capitalize on robust travel demand. Taiwan Semiconductor Manufacturing Co. raised its spending and revenue projections for the year, reflecting its confidence that torrid growth in demand for chips and data centers will extend into 2027. Baidu Inc. plans to pursue a dual primary listing in the US and Hong Kong, a move that will allow it to tap mainland Chinese investors. Uber Technologies Inc. has agreed to buy Delivery Hero SE in a deal that values the German food-delivery company at $14.8 billion. Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.2% as of 7:38 a.m. New York time Nasdaq 100 futures fell 0.8% Futures on the Dow Jones Industrial Average rose 0.2% The Stoxx Europe 600 fell 0.6% The MSCI World Index fell 0.2% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1462 The British pound fell 0.3% to $1.3500 The Japanese yen was little changed at 162.17 per dollar Cryptocurrencies

Bitcoin fell 1.2% to $64,155.95 Ether fell 2% to $1,883.71 Bonds

The yield on 10-year Treasuries advanced three basis points to 4.57% Germany’s 10-year yield advanced two basis points to 3.14% Britain’s 10-year yield advanced three basis points to 4.97% Commodities

West Texas Intermediate crude fell 0.1% to $79.52 a barrel Spot gold fell 0.7% to $4,032.23 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Neil Campling.

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