Nasdaq has worst week since June
On Friday, the Nasdaq Composite, a tech-focused index, dropped 2.14%, marking its steepest weekly decline since June, as investors grappled with an AI sector sell-off and rising oil prices ahead of the Federal Reserve’s Oct. 27-28 policy meeting. The index plunged over 4% for the week.
The S&P 500 lost 1.09% to 7,659.44, and the Dow Jones Industrial Average fell 175.28 points, or 0.34%, to 52,002.41. Both the Nasdaq and the S&P 500 ended below their 50-day moving averages.
AI Sell-Off Hits Chipmakers
Chipmakers led the retreat, with the VanEck Semiconductor ETF losing 3% Friday and 10% for the week, its biggest weekly decline since April 2025. Concerns about competition from China contributed to the decline.
In South Korea, the Kospi fell 14.5% on the week, its worst since October 2008, as Samsung and SK Hynix tumbled nearly 20% and 25%. The decline in these tech-heavy indexes has advisors weighing concentration risk.
Debt Worries Spread
Investors are questioning how the AI build-out is financed, with shares of CoreWeave, a Nvidia-backed AI cloud provider, falling nearly 12% Friday and 25% for the week. Yields on its 2031 bonds topped 16%, and the cost of insuring its debt implied a nearly 63% chance of default within five years.
Oracle, which has also borrowed heavily for data centers, closed 8.8% lower Wednesday. CoreWeave CEO Mike Intrator wrote in a memo to staff that the company is confident in its backlog, which supports its debt obligations.
Michael Rosen, chief investment officer at Angeles, said the question is whether the debt issue is systemic. He noted that increased debt issuance is something to observe, but the current levels are not excessive. Rosen’s statement highlights the need for investors to carefully monitor the situation.
Energy Prices Add Pressure
Energy prices added to the pressure, with West Texas Intermediate futures settling at $101.41 a barrel, up 3.51%, and Brent rising 3.72% to $109.86. Iran’s escalation of attacks in the Strait of Hormuz and Ukraine’s vow to keep striking Russian refineries contributed to the increase.
September consumer prices rose 3.7% from a year earlier, above the 3.6% forecast, and producer prices climbed 6.3% against an expected 5.5%. The Fed raised its benchmark rate a quarter-point to 3.75%-4% in September, its first increase since 2023.
Fed chair Kevin Warsh said the Fed would deliver price stability, but would not prejudge the October or December decisions. The CME Group’s FedWatch tool put the odds of a hold at 82%, but Bank of America strategist Michael Hartnett has turned “risk-off” for the next month, citing the need for the Fed to hike on Oct. 28.
Darrell Cronk, president of Wells Fargo Investment Institute, urged caution on bond duration, saying financial conditions are tightening and long-term borrowing costs face upward pressure. He noted that investors are increasingly demanding additional compensation to hold longer-maturity bonds. Cronk’s advice is particularly relevant given the current market conditions.
As the Federal Reserve’s meeting approaches, investors will be closely watching the decisions made by the Fed. The meeting will take place on Oct. 27-28, and the outcome will have a significant impact on the market. The Fed’s decision will be influenced by various factors, including the current state of the economy and the inflation rate.
The situation is being closely monitored by investors, who are trying to make sense of the current market conditions. The debt worries are also a major concern, with investors questioning how the AI build-out is financed.
