US Stock Market Rises as Oil Prices Stabilize, but AI Stock Slump Caps Gains
Most of the U.S. stock market climbed on Friday as oil prices returned to pre-conflict levels with Iran, easing concerns about energy costs and supply disruptions. However, persistent declines in artificial intelligence-related stocks kept broader market gains in check, underscoring the sector’s outsized influence on major indexes.
Major Indexes Recover from Early Losses
The S&P 0.5% after recovering from an early loss of 0.9%. The index, which anchors many 401(k) retirement accounts, remains on track for its second losing week out of the last 13, largely driven by selling pressure tied to the AI technology boom. The Dow Jones Industrial Average was up 194 points, or around 0.4%, midday Eastern Time, while the Nasdaq Composite also rose 0.5%.
AI Stocks Face Mounting Pressure
After years of leading the market to record highs, AI stocks have recently faced significant selling pressure as investors worry that profits may not keep pace with soaring valuations. These declines carry an outsized impact because AI companies have become Wall Street’s largest and most influential stocks, with their price movements weighted more heavily in major indexes than those of other companies.
Micron Technology’s 3.3% decline was the single largest drag on the market for the day. The computer memory maker has been a standout performer this year, with its shares quadrupling amid surging demand driven by the AI boom. However, investors confronted the downside of that rally on Thursday when Apple announced it would raise prices on laptops and several other products by significant percentages to offset rising memory costs. Concerns are growing that higher consumer prices could ultimately dampen demand for those products.
SpaceX Volatility Highlights AI Sector Turmoil
Underrating the volatility in AI-related names, SpaceX briefly fell below $149 in morning trading, a 2.9% loss, before rebounding to a gain of 2.2%. The company, which went public earlier this month at $135 per share and briefly surged past $225 in its first days of trading, is Elon Musk’s venture that also owns the artificial intelligence company xAI.
Onsemi was the biggest loser on the S&P 500 for the day, plunging 21.6% after agreeing to acquire Synaptics in an all-stock deal valued at approximately $7 billion.
Oil Price Drop Lifts Broader Market Sentiment
Stocks received a boost as Brent crude, the international benchmark, fell 4.5% to $72.13 per barrel. That level is below the price recorded the day before the U.S. and Israel attacked Iran, an event that ultimately led to the closure of the Strait of Hormuz and restricted global oil supplies.
Cheaper energy costs provided a tailwind for companies with significant fuel expenses. United Airlines rose 2.1% as lower oil prices offered relief to the airline sector. More broadly, roughly two out of three stocks in the S&P 500 advanced, though further declines in AI stocks helped offset those gains.
Healthcare Stocks Surge on Regulatory News
Healthcare stocks were among the market’s strongest performers after a European Medicines Agency committee recommended approval of several drugs and renewed a dozen additional therapeutic indications. Eli Lilly shares jumped 6.8% on the positive regulatory developments.
Bond Yields Decline as Inflation Expectations Ease
In the bond market, government bond yields fell alongside oil prices. The yield on the 10-year Treasury note dipped to 4.37% from 4.40% late Thursday. A report showing that U.S. consumers’ inflation expectations for the coming year declined to 4.6% from 4.8% in May provided additional support. While still elevated, the downward move reduces the likelihood of a self-reinforcing cycle in which expectations of higher inflation lead to behavioral changes that further drive prices upward.
High yields across global bond markets, fueled by inflation concerns, pose a threat to economic growth and have already pushed mortgage rates and other borrowing costs higher. Elevated yields also weigh on the prices of the most expensive investments, intensifying the pressure on high-flying AI names.
Asian Markets Sell Off on AI Concerns
Asian stock markets opened Friday with sharp declines driven by losses among prominent AI investors. In Japan, Softbank Group Corp. plunged 12.5%, contributing to the25’s 4.2% drop. Softbank is a major investor in OpenAI, maker of the ChatGPT chatbot. According to a New York Times report, OpenAI is considering delaying its initial public offering from the second half of the year into the next year.
Such an IPO would give OpenAI the opportunity to raise capital for data centers and allow early investors like Softbank to liquidate some of their holdings. However, the recent sell-offs in SpaceX and AI stocks more broadly may signal waning investor appetite for large AI-related companies.
In South Korea, SK Hynix fell 8.4% and Samsung Electronics dropped 5.3%, pushing the Kospi down 5.8% and narrowing its year-to-date gain to 99.6%.
