Sell-off over AI concerns: Tech stocks come back from daily lows
Quick Look
- U.S. investors have dumped technology stocks amid rising interest rates and increased inflation expectations while investing in defensive sectors such as healthcare and consumer spending.
- The Dow Jones rose while the Nasdaq closed little changed.
- TSMC's cautious outlook weighed on semiconductor stocks, and individual stocks like FMC and Rocket Lab fell on bad news.
AI-generated summary
Why It Matters
Investors are reacting to rising U.S. interest rate expectations due to stronger-than-expected inflation data, leading to a repricing of growth stocks, particularly in the AI and semiconductor sectors.
US investors expect interest rates to rise. This brings the astronomical debts of many AI companies into focus. Tech stocks in particular are being sold off on a large scale. By the evening, however, a bit of calm had returned to Wall Street.
The US stock exchanges closed mixed on Thursday. While investors cashed in on technology stocks because of high interest rates, they bought into healthcare and consumer stocks that were considered defensive. The Dow Jones index of standard stocks closed 1.1 percent higher at 52,177 points. The broader S&P 500 gained 0.3 percent to 7,744 points. The Nasdaq technology exchange index closed little changed at 26,711 points, after being almost 400 points lower in early trading. Gainers included Eli Lilly, UnitedHealth and Walmart, which benefited from upgrades.
Technology stocks were under pressure as investors dumped companies with high debt loads in the AI sector. The Philadelphia semiconductor index fell for the seventh trading day in a row. Shares of Broadcom and Nvidia fell after chipmaker TSMC gave a cautious outlook for 2027 despite a record profit. Dell and Hewlett Packard Enterprise continued their decline from the previous day.
The background to the shifts is concerns about further rising interest rates. Data on Thursday showed that U.S. producer prices rose the most in four and a half years in September. Unexpectedly high inflation data had already caused a sell-off on Wednesday. Traders now see the probability of an interest rate hike by the US Federal Reserve at its December meeting at 67 percent, up from 62 percent the day before.
“Small rotation with the big names”
"The cost of financing anything, be it a new single-family home or a massive data center, is rising, and that's impacting many areas of the stock market," said portfolio manager Jed Ellerbroek of Argent Capital Management. "We're seeing a little rotation in the big names, but we've seen this before," said Joe Saluzzi, co-head of equity trading at Themis Trading. "It seems like this comes up every few months and we have the AI concerns."
Among the individual stocks, FMC collapsed after the agrochemical group significantly lowered its forecast for the third quarter. Rocket Lab shares also fell after the space company said the first flight of its new, larger Neutron rocket would be delayed until next year.
What to Watch
AI outlook — possibilities, not facts
The Fed is expected to raise interest rates in December based on current inflation data and market sentiment.
Likely · Within months
Open Questions
- How long will the rotation from tech to defensive stocks last?
- Will the Fed actually raise interest rates in December, as currently expected?
- How will AI companies with high debt loads respond to higher financing costs in the long term?
