The stock market finished a volatile week mostly lower, as a deepening correction in AI-related stocks overshadowed strength across much of the broader market. The S&P 500 declined 0.6%, the Nasdaq Composite fell 2.0%, and the DJIA lost 0.9%. However, the Russell 2000 and S&P Mid Cap 400 both gained 1.3%, reflecting a notable divergence between the major averages and smaller companies.
The week's central theme was the market's increasingly critical assessment of the enormous capital expenditures associated with the AI infrastructure buildout. An early rebound in semiconductor and AI-related stocks gained momentum amid reports of additional investment commitments and encouraging corporate outlooks, including upbeat long-term guidance from Oracle. However, that optimism faded as earnings reports from several influential mega-cap companies raised fresh concerns about financing requirements and the ability to translate strong AI demand into profitable returns.
Alphabet was a particularly significant source of pressure following its earnings report, as substantial infrastructure spending and negative free cash flow overshadowed strong cloud revenue growth. Microsoft also faced scrutiny over plans for additional capital expenditure increases, while Amazon added to those concerns with its own spending outlook.
The communication services sector (-8.5%) suffered the largest weekly decline, while the information technology sector (-1.8%) also struggled, reflecting the pressure on the market's largest growth-oriented stocks.
Outside those areas, however, weekly performance was considerably more constructive. Nine of the 11 S&P 500 sectors finished higher, led by the health care sector (+3.1%). The materials (+2.0%), utilities (+2.0%), industrials (+1.7%), and consumer staples (+1.6%) sectors also outperformed. The S&P 500 Equal Weighted Index gained 0.8%, highlighting the stronger participation beneath the market-cap-weighted index's decline. Friday's broad selling nevertheless demonstrated that strength elsewhere was becoming less effective at offsetting the technology retreat.
Macroeconomic developments also influenced trading. The FOMC left its target range unchanged at 3.75% to 4.00%, with Chair Warsh reaffirming the Fed's commitment to returning inflation to 2.0%. Meanwhile, September PCE inflation showed continued price pressures, even as third-quarter GDP growth exceeded expectations. Crude oil remained elevated amid uncertainty surrounding the U.S.-Iran conflict, finishing just above $104 per barrel after a volatile week. Treasuries benefited from safe-haven demand late in the week, with the 10-year note yield declining six basis points to 4.93%.
Ultimately, the week's losses in the major averages masked a relatively strong showing across most sectors and smaller companies. Still, the sharp reversal in AI-related stocks, particularly following earnings from major technology companies, reinforced growing concerns about the costs and returns of the industry's massive investment commitments. Those concerns remained the dominant influence heading into the following week.
Russell 2000: +1.3% week-to-date
S&P Mid Cap 400: +1.3% week-to-date
S&P 500: -0.6% week-to-date
DJIA: -0.9% week-to-date
Nasdaq Composite: -2.0% week-to-date