In a volatile trading session, the Dow Jones Industrial Average briefly reached an all-time high on Friday, only to be met with significant selling, particularly in stocks associated with the artificial intelligence (AI) sector. The day was characterized by a lack of incoming economic data, leaving investors focused on individual stocks and sector performances rather than broader economic indicators.
Among the notable decliners were semiconductor giant Nvidia, which saw a decrease of 3.3%, and prominent tech companies linked to AI, including Amazon and Microsoft, which fell by 1.8% and 1.0%, respectively. In contrast, Walmart rose by 1.0%, buoyed by positive sentiment towards consumer staples. Additionally, UnitedHealth Group and Boeing saw gains of 1.5% and 1.8%, respectively, despite wider declines in the industrials sector.
Meanwhile, marijuana stocks experienced a surge in activity following reports that President Donald Trump may consider an executive order to reclassify cannabis, potentially moving it to Schedule III, akin to common prescription painkillers. By the day’s end, the Dow closed down 0.5% at 48,458, although it remained 1.0% higher for the week. The S&P 500 dropped by 1.1% to 6,827, resulting in a weekly loss of 0.6%, while the Nasdaq Composite fell by 1.7% to close at 23,195, down 1.6% over the week.
A significant focus of concern was Broadcom, whose shares fell sharply by 11.4% following mixed responses to its fourth-quarter earnings report. The company reported earnings of $1.95 per share, exceeding Wall Street expectations, with revenues of $18.02 billion, marking a 28.2% year-on-year increase. However, despite the strong earnings, there was skepticism among investors regarding the scalability of AI spending and profitability, particularly after Broadcom indicated potential issues with AI margins. Louis Navellier from Navellier & Associates drew parallels with Oracle, which experienced a steep decline in its stock price the day prior after reporting its own earnings.
Amidst these market movements, the bond market saw yields on various Treasury notes adjust slightly. The yield on the 2-year note decreased to 3.526%, while the 10-year yield rose to 4.188%, reflecting concerns about interest rate trends. Analysts noted that rising long-term interest rates may exert pressure on price-to-earnings ratios, small-cap companies, and the real estate market. The anticipated outcomes of the upcoming Federal Open Market Committee (FOMC) meeting may also influence market sentiments, with current indications suggesting that a rate cut may not be forthcoming in January.
As market participants continue to navigate these challenges, concerns around profitability in the AI sector, along with profit-taking behaviors at high market valuations, may set the tone for the near-term outlook.
