Review & Preview: AI Bloodbath

A Sea of Red. It seemed investors couldn’t get out of tech fast enough on Friday. The week ended with a dramatic rethink of the engine driving the bull market: the AI trade.

The Nasdaq Composite plunged 2.1% on Friday. It dropped 4.5% on the week, it’s worst performance since June.

Things weren’t much better for the S&P 500, which fell 1.1% on Friday and 2% for the week. Unsurprisingly, Information Tech led losses on a sector level, tumbling 6.4% over the course of the week.

The Dow Jones Industrial Average dropped 0.3%, or 175 points on the final trading day of the week. But the blue-chip index did manage to end the week higher, rising 0.7%, thanks to exposure to non-tech names like UnitedHealth Group, Travelers Companies, and Home Depot.

Despite the tech downturn, most sectors actually ended the week in the green, signaling there’s a rotation out of tech into other areas of the equity market. Consumer staples rose 5%, in a sign investors were tapping traditional defensive plays. Energy also gained 5%, following oil’s lead. West Texas Intermediate futures ended the week above $101 per barrel.

Some relief in the bond market likely helped lift non-tech stocks. The 10-year Treasury yield fell below 5.1% on Friday after seeing its largest one week drop since the breakout of the war in Iran.

Even as the non-AI sectors gain steam, though, the challenge for investors will be how much of an outsized impact tech has on the market. It’s hard to see a world where traders come out of a massive AI selloff unscathed.

Next week, Magnificent Seven earnings kick off with reports from Tesla and Meta. The releases are likely to be an inflection point for AI stocks, deciding which direction they will move.

This week’s turmoil is a prime reminder of how quickly the tides can turn. Investors can only hope for better luck next week, and good news from big tech earnings.

Review & Preview

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Company

Last

Chg

Chg%

Dow Jones Industrial Average

52,002.41

-175.28

-0.34%

S&P 500 Index

7,659.44

-84.62

-1.09%

NASDAQ Composite Index

26,140.03

-572.99

-2.14%

Market Data as of

The Hot Stock: Targa Resources +4.4%
The Biggest Loser: Twilio -10.6%

Best Sector: Energy +2.5%
Worst Sector: Information Technology -2.5%

Created with Highcharts 9.0.1This WeekIndex performanceSource: FactSetAs of Oct. 16, 3:50 p.m. ET

Created with Highcharts 9.0.1Oct. 12Oct. 16-6-5-4-3-2-10123%Dow industrialsS&P 500Nasdaq Composite

This Weekend’s Magazine

Photo: Photograph by Scott Semler

The Calendar

The tough week for equities came just ahead of what’s likely to be a crucial earnings week.

Hyperscalers earnings could revive the chip stock trade, if the big capex spenders continue to increase their monetary commitments to the data center buildout. Meta Platforms, on Wednesday, is one of about 70 S&P 500 index companies set to report earnings this week.

Also announcing earnings this week are GE Aerospace and General Motors on Tuesday, followed by AT&T, IBM, and Tesla on Wednesday. Lockheed Martin and Procter & Gamble release their results on Thursday, while American Express closes out the week on Friday.

It’s a light week for economic data, with the Census Bureau reporting residential construction data on Tuesday and S&P Global releasing both its Manufacturing and Services Purchasing Managers’ Indexes on Friday.

— Dan Lam

What We’re Reading Today

• Semiconductors Are Becoming More Complex. This Spinoff Provides an Easy Way to Profit.
• Even Tesla’s Flying Car Can’t Lift the Tech Stock Gloom
• AI Skepticism Is Shaking Markets. Will an Oracle Downgrade Be the Next Shoe to Drop?
• Why Healthcare Stocks Are Hot When the AI Trade Runs Cold
• And this weekend’s cover story: This Stock’s for You: Buy Bud’s ‘Diet Coke’ Moment

Join Barron’s Live at noon on Monday. Associate Editor Reshma Kapadia speaks with Jonathan Cofsky, portfolio manager on Janus Henderson’s Global Technology and Innovation Team, about assessing AI buildout concerns, competition from China, and which AI heavyweights, like Nvidia, TSMC, Samsung and SK Hynix, are still undervalued.

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