The S&P 500 Index ($SPX) (SPY) closed down -1.01% on Friday, marking a 1-week low, while the Dow Jones Industrial Average ($DOWI) (DIA) fell -0.77% to a 2.5-week low. The Nasdaq 100 Index ($IUXX) (QQQ) dropped -1.49%, reaching a 5-week low. September E-mini S&P futures (ESU26) fell -1.02%, and Nasdaq futures (NQU26) declined -1.51%. The downturn was driven by heavy losses in tech stocks amid concerns over unsustainable AI investment valuations.
Global markets amplified the selloff, with China’s Shanghai Composite plunging -3% and Japan’s Nikkei down -4% following the launch of Moonshot’s Kimi K3 AI model, which rivals leading AI platforms. This triggered fears of excessive spending in the semiconductor and AI sectors. The “Magnificent Seven” tech giants underperformed, exacerbating the market decline.
Positive momentum came from mixed data: the University of Michigan’s July consumer sentiment index hit a 5-month high at 54.4, while 1-year inflation expectations eased to 4.2%. Energy stocks rallied as crude oil prices surged to a 5-week peak.
Housing data showed a 19% month-to-month increase in June housing starts to 1.427 million, outpacing expectations. However, building permits fell -3% to 1.367 million, indicating weaker future construction trends.
Manufacturing production remained unchanged month-to-month, below forecasts. Import prices excluding petroleum rose 0.5% month-to-month, reflecting persistent supply chain pressures.
Fed official Beth Hammack signaled a hawkish stance, citing elevated inflation as a primary concern despite strong consumer spending and low unemployment.
Geopolitical tensions escalated as U.S. strikes against Iran led to oil price surges. Crude oil (CLQ26) rose over 4% after military actions targeting Iranian ports and infrastructure. Iran retaliated with drone attacks on U.S. bases in the Middle East, with Kuwait reporting damage to critical facilities.
Corporate insider selling remained a drag, with executives disposing $77.6 billion in stocks year-to-date, the second-highest level in over two decades.
The outlook for Q2 earnings appears strong, with reports suggesting a 23% earnings increase, driven largely by AI infrastructure investments accounting for nearly 60% of S&P 500 EPS growth.
Markets priced an 8% probability of a 25-basis-point rate hike at the upcoming FOMC meeting on July 28-29.
International markets mirrored the decline: the Euro Stoxx 50 fell -0.84%, China’s Shanghai Composite hit a 10.5-month low (-3.05%), and Japan’s Nikkei declined -4.03%.
U.S. Treasury yields responded to equity weakness, with 10-year notes (ZNU6) climbing to a 1.5-week high as safe-haven flows increased. However, initial CPI data and crude oil gains capped the rally.
The Eurozone 10-year yield dropped -0.8 bp to 3.126%, while the UK gilt yield fell -1.5 bp to 4.951%.
Sector-specific declines included chipmakers and AI stocks, with the iShares Semiconductor ETF (SOXX) falling -1% and Applied Materials (AMAT) dropping -5%. Nvidia (NVDA) and Meta Platforms (META) also underperformed, dragging down the broader market.
Energy stocks outperformed, led by Valero Energy (VLO) (+3%) and exploration companies like Marathon Petroleum (MPC) and Occidental Petroleum (OXY).
Losers included Intuitive Surgical (ISRG), which fell -14% despite strong earnings, and Netflix (NFLX), which cut revenue guidance. Catalysts for the decline included cybersecurity breaches at Coca-Cola (KO) and negative guidance from Intuitive Surgical.
Gainers in the S&P 500 included Travelers (TRV) and Jazz Pharmaceuticals (JAZZ), while Construction Partners (ROAD) rose after a portfolio reallocation announcement.