US Stocks Drop a Fourth Day as Exit Out of AI Shares Continues

r]{7scswujs5k7lmp{6w4ytv_media_dl_1.png Bloomberg, Barclays

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(Bloomberg) — US stocks sank for a fourth straight day as weakness in AI-related stocks outweighed investor optimism about the potential for additional interest-rate cuts from the Federal Reserve.

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The S&P 500 Index dropped 1.2% Wednesday, for its longest losing streak in a month, and fell below its average over the last 50 days, a key technical level. Nvidia Corp. and other AI stocks weighed on the benchmark. Information technology was the worst-performing of the 11 sectors in the market, followed by communications services.

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The tech-heavy Nasdaq 100 lost 1.9%, and is now down more than 5% from its recent peak, while the blue-chip Dow Jones Industrial Average retreated 0.5%.

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“The AI trade continues to take on water,” said Jonathan Krinsky, chief market technician at BTIG LLC, adding that weekly momentum is rolling over. “While it’s still premature to say if it is ‘the’ top for AI stocks, evidence is growing that it’s more than just a speed bump.”

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Oracle Corp. shares fell after the Financial Times reported that Blue Owl Capital Inc. wouldn’t back a $10 billion deal for a data center in Michigan. Oracle said the equity deal was still on schedule.

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“Rotation pressure out of tech has accelerated,” said Adam Turnquist, chief technical strategist for LPL Financial. 

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As tech loses momentum, other areas are advancing. Energy was the top-performing sector in the S&P 500, rising along with oil prices after US President Donald Trump ordered a blockade of Venezuelan oil tankers.

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Traders are parsing the Fed’s next moves amid a slew of economic data rolling in this week to fill the void created by the US government shutdown. Fed Governor Christopher Waller, considered a potential successor to Jerome Powell as Fed chair, said Wednesday that rates are still 50 to 100 basis points above neutral and that the labor market was “very soft.” 

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On Thursday, traders will get a key inflation reading for November as well as weekly jobless claims, providing clues to the central bank’s potential rate path.

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“This is a key week for economic data as US government statisticians slowly recover from their involuntary hiatus,” said Mike O’Rourke, chief market strategist at Jonestrading Insitutional Services LLC. 

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O’Rourke wrote in a note to clients that he expects core annual CPI at 3%, meaning “the Fed is not in a position to ease unless the economy deteriorates.”

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Options traders are betting the S&P 500 will swing 0.7% in either direction after the inflation report, according to data compiled by Barclays Plc. That’s lower than the 1% average realized move spurred by the 12 reports delivered through September.

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—With assistance from Alexandra Semenova and Bernard Goyder.

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