The sinking AI trade and hotter-than-expected inflation data rattled last week’s stock market. But solid bank earnings and a rotation beyond tech gave us reasons for optimism. The Nasdaq’s 4.5% weekly decline broke a four-week winning streak and marked the worst weekly decline for the tech-heavy index since June. The S & P 500 fell 2% last week. The Dow Jones Industrial Average bucked the trend — gaining 0.7% as investors rotated into healthcare, consumer staples, and other sectors less dependent on the artificial intelligence boom. The sell-off accelerated Wednesday after hotter-than-expected consumer inflation data raised concerns that the Federal Reserve could keep interest rates elevated for longer. September’s consumer price index rose 3.7% from a year earlier, above the 3.6% expected, while core inflation also came in slightly hotter than anticipated. Thursday’s producer price index offered little relief, jumping 1.3% for the month and 6.3% annually, the biggest annual and monthly gains since March 2022 and December 2022, respectively. Higher inflation, fueled partly by elevated oil prices, threatens to push up borrowing costs and complicate the massive AI infrastructure buildout. Broadcom CEO Hock Tan warned Monday that access to capital could become the industry’s next major constraint. Our cybersecurity stocks were crushed last week, while Meta Platforms and Microsoft had some of the week’s rare bright spots in tech. Against that backdrop, we continued diversifying beyond the AI trade — adding to Kimberly-Clark on Tuesday as its Kenvue acquisition moved closer to completion. We exited our remaining Honeywell Technologies position on Wednesday to replenish cash. We trimmed Cardinal Health Thursday to lock in profits after its recent rally and bought more Bank of New York following strong earnings Here’s a closer look at the three developments that shaped the market week. AI’s sell-off makes the case for diversification The AI trade took another hit last week as investors grew concerned about rising borrowing costs and mounting competition in the semiconductor industry. Memory stocks — including Micron , Sandisk , Western Digital , and Seagate — fell after Chinese rival CXMT announced progress on a more efficient chip structure , raising fears of increased competition and a potential supply glut. The iShares Semiconductor ETF extended its losing streak to nine straight sessions, its longest in more than a decade, while the VanEck Semiconductor ETF was down 10% for the week, its worst week since July. Concerns that tech companies are borrowing too much for the AI buildout sent neoclouds like CoreWeave , which has seen its total debt rise to more than $51 billion , plunging 25% last week. Perhaps even more concerning than the stock rout has been the jump in CoreWeave corporate bond yields and spike in credit default swaps , a kind of insurance policy on debt. Our cyber stocks Palo Alto Networks and CrowdStrike were our worst…
Read More: AI stocks plunge. Inflation heats up. Where we’re still finding