Stan Choe
The US stock market fell from its records on Friday and joined a worldwide drop for stocks after higher oil prices sent a shiver through the bond market. Stocks that had been caught up in the euphoria around artificial-intelligence technology led the way lower.
The S&P 500 fell 1.2 per cent from its all-time high set the day before. The Dow Jones dropped 537 points, or 1.1 per cent, and the Nasdaq composite sank 1.5 per cent from its own record. The Australian sharemarket is set to slide, with futures pointing to a fall of 38 points, or 0.4 per cent, at the open. The Australian dollar was trading at US71.58¢ at 5.12am AEST.
Technology stocks tumbled in a sharp turnaround from their meteoric rises for much of the year, which had carried markets worldwide to records but also raised criticism that they had gone too far.
Nvidia, the stock that quickly became the face of the AI revolution, dropped 4.4 per cent and was the heaviest weight on the S&P 500. It had come into the day with a gain of more than 26 per cent for the year so far.
Micron Technology was another one of the heaviest weights on the market after falling 6.6 per cent. It’s nevertheless still up nearly 154 per cent for the year so far.
“To us, it looks like markets have pushed into overbought territory,” according to Brian Jacobsen, chief economic strategist at Annex Wealth Management. He said the strong corporate profits and durable US economy that launched US stocks to records remain intact, but “the path is unlikely to be smooth. Periods like this call for discipline more than hope.”
In the meantime, rising oil prices are raising the pressure after already worsening inflation by more than economists had feared. The war with Iran is continuing, and the Strait of Hormuz remains shut to oil tankers, which is preventing them from delivering crude to customers worldwide and driving up oil’s price.
The price for a barrel of Brent crude oil, the international standard, rose 3.3 per cent to settle at $US109.26 and is well above its level of roughly $US70 from before the war.
Many big US companies have been saying their customers have been able to keep spending on their products and services despite having to pay higher prices for gasoline. But US households have also been telling surveys they’re feeling discouraged about the economy and the pressures building on them because of the war and tariffs.
The worries were most clear on Friday in the bond market, where Treasury yields climbed. The yield on the 10-year Treasury rose to 4.59 per cent from 4.47 per cent late on Thursday. That’s a notable move for the bond market, and it’s well above its 3.97 per cent level from before the war.
The yield on the 30-year Treasury reached 5.13 per cent and is back to where it was in 2007, before the financial crisis sent yields crashing toward zero in the ensuing year.
Higher yields can make mortgages and other kinds of loans going to US households and businesses more expensive, which slows the economy. They also tend to push downward on prices for stocks and all kinds of other investments.
Stocks of smaller companies had some of Friday’s sharpest drops. Many of them need to borrow cash to grow, which means higher borrowing costs can hurt them more than their big rivals. The Russell 2000 index of the smallest US stocks fell 2.4 per cent, double the S&P 500’s loss.
All told, the S&P 500 fell 92.74 points to 7,408.50. The Dow Jones Industrial Average dropped 537.29 to 49,526.17, and the Nasdaq composite sank 410.08 to 26,225.14.
Yields have been climbing since the war on worries about higher inflation and how it may tie the Federal Reserve’s hands when it comes to short-term interest rates. Not only have traders abandoned virtually all expectations that the Fed will resume its cuts to interest rates this year, they’ve been building some bets that it may even hike rates in 2026, according to data from CME Group.
A couple of reports on the US economy that came in better than expected also helped to lift yields. One said US industrial production improved by more last month than economists expected, while another said manufacturing in New York state is expanding at a faster rate.
In stock markets abroad, indexes fell by more than 1.5 per cent across much of Europe and Asia.
South Korea’s Kospi dropped 6.1 per cent for one of the biggest moves. It’s set records this year because of the influence of AI beneficiaries like SK Hynix. But it quickly reversed momentum Friday after briefly topping the 8,000 level for the first time.
Some on Wall Street have been warning about a possible break in momentum for tech stocks in general and AI winners in particular.
“If nothing else this should be a ‘shot across the bow’ for how volatility works both ways,” according to Jonathan Krinsky, chief market technician at BTIG.
AP
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
