Oversold Rebound but Weekly Losses Continue
US stocks closed mixed on Friday. After technology shares plunged in the previous session and dragged down global markets, the market staged an oversold rebound. The Nasdaq index rose about 1% led by chip and other technology stocks, but still posted its fourth straight weekly loss, showing investors' concerns about the outlook for artificial intelligence development have not fully faded. The Nasdaq had plunged 5% the previous day, and the pullback has taken the index down at least 10% from the record high set a month ago, entering technical correction territory.
Among sub-indexes, the Philadelphia Semiconductor Index was the strongest performer, closing up 379.112 points, or 4.21%, at 9390.250 points. The Dow Jones Industrial Average closed down 237.33 points, or 0.46%, at 51285.73 points. The Standard & Poor's 500 index rose 23.13 points, or 0.31%, to close at 7376.86 points. The divergent performance of the three major indexes reflected funds swinging between a rebound in AI-concept stocks and demand for safety.
Election Noise Weighs on AI Outlook
This week's market volatility was closely tied to US midterm election results. Democratic candidates who support pausing AI data center construction won governorships in multiple states, raising investor concerns about the pace of US AI buildout and capital expenditure outlook, which triggered a sharp sell-off in US stocks on Thursday and weighed on Asian stocks on Friday. Friday's rebound showed to some extent that investors have not given up their bets on the long-term growth of the AI industry. Despite the recent increase in volatility, the AI investment boom had previously driven major US stock indexes to multiple record closing highs.
Strategists remain cautiously optimistic on the outlook. Keith Lerner, chief market strategist at Truist Advisory Services, said AI is the most dominant investment theme in this bull market, and he remains willing to give technology stocks more credit, adding that this week's sell-off may offer medium- to long-term buying opportunities for investors. Adam Turnquist, chief cross-asset strategist at LPL Financial, said AI has been tested by the market many times in this market cycle but has ultimately proven to be fine, and this week's sell-off triggered by the midterm election results was to some extent a knee-jerk sell-off.
Strong Jobs Data Lifts Rate-Hike Expectations
On the macroeconomic front, data released by the US Labor Department on Friday showed October nonfarm payrolls rose more than market expectations, with the unemployment rate falling to 4.1%, showing the labor market remains resilient. The strong jobs data eased some market concerns about slowing US economic growth, but also heightened investor concerns about the inflation and interest rate outlook. After the data release, traders further raised bets on a Federal Reserve rate hike in December. According to LSEG data, market expectations for a Fed rate hike next month rose to 78%, up from 70% previously.