It was a Jekyll-and-Hyde kind of week in the market. Wall Street’s enthusiasm for artificial intelligence stocks proved short-lived. A promising week early on gave way to sharp back-to-back selling after a run of disappointing tech earnings. The Nasdaq had climbed more than 2% through Wednesday before losing 1.4% on Thursday and nearly 3% on Friday. The tech-heavy index lost 2% for the week and sank 5.3% for October. The S & P 500 followed a similar pattern, culminating in a nearly 2% decline Friday and a similar loss for the week. The broader market index fared better for the month, only losing nearly 1%. The rotation out of tech and into defensive stocks showed up the most in the Dow , which fell less than 1% for the week and actually gained 1.7% for the month. Semiconductor stocks staged a sharp rebound before renewed concerns about the AI trade sent shares tumbling. It didn’t help that expectations remained high for the Federal Reserve to raise interest rates in December. While central bankers held rates steady Wednesday, Fed Chairman Kevin Warsh talked tough on inflation, signalling it’s only a matter of time before another hike. The prospect of higher rates only exacerbated investor worries that tech companies may be borrowing too much in the race to keep building out AI. Here’s a closer look at the three developments that drove last week’s market. What reversed the chip stocks Monday started the week off strong. Anthropic’s IPO filing helped reignite enthusiasm for the AI group, while SK Hynix’s record quarterly profit on Wednesday reinforced confidence in strong memory demand. The iShares Semiconductor ETF (SOXX) surged roughly 9% over the first three trading sessions. But the rally fizzled as disappointing Big Tech earnings revived concerns about AI spending. Intel added to the pressure with a weak outlook Thursday evening that sent shares plunging more than 28% on Friday, making it our worst performer of the week. We cut our price target and placed our rating under review. Jim Cramer said Friday that he can’t rationalize selling Intel after such a big decline. Portfolio director Jeff Marks summed it up in the Homestretch: “The data center story at Intel is still mostly intact, but what we got wrong was the sharp drop in personal computer CPU demand due to the high cost of memory and some execution hiccups.” Wall Street’s AI priorities changed Earnings from Microsoft , Alphabet , and Amazon reinforced a shift in sentiment: Investors are increasingly prioritizing financial discipline and a line of sight to returns on AI investments over aggressive spending. Microsoft delivered strong results Wednesday, with Azure revenue growing 48% and capital spending coming in below expectations. Shares initially rallied before giving back their gains, but Jim praised management’s ability to deliver robust cloud growth while keeping spending in check. We raised our price target to $580 from $550 and maintained our hold-equivalent 2 rating ….
Read More: Stocks started the week with promise but ended in despair