US Stocks Experience Sharp Decline Amid AI Disruption Fears and Inflation Concerns
US stock markets witnessed a significant downturn on Friday, driven by a combination of renewed anxieties over artificial intelligence-driven disruption, a stronger-than-anticipated inflation reading, and escalating geopolitical tensions. These factors collectively weighed heavily on investor sentiment, leading to broad-based losses across major indices.
Major Indices Suffer Losses as Inflation Data Sparks Rate Cut Delays
The S&P 500 declined by 0.8%, moving towards what could be only its second losing month in the past ten. The Dow Jones Industrial Average dropped sharply by 569 points, equivalent to a 1.2% fall, while the Nasdaq Composite also fell by 1.2% in early trading, as reported by AP.
Markets were unsettled by a report indicating that US wholesale inflation reached 2.9% last month, significantly exceeding economists' expectations of 1.6%. This stronger reading raised concerns that the Federal Reserve might delay interest rate cuts, which typically support economic growth and asset prices but can also risk stoking inflation if implemented prematurely.
AI Disruption Drives Selloff in Vulnerable Companies
The inflation data contributed to a broader selloff in companies perceived as vulnerable to AI disruption. Investors have increasingly targeted software firms and other businesses seen as potential losers in the AI revolution, reflecting growing uncertainty about their future competitiveness.
Block, the company behind Cash App and Square, provided a stark example of this trend. CEO Jack Dorsey announced plans to cut nearly half its workforce—more than 4,000 jobs from a staff of over 10,000—despite rising profits and increased share buybacks. In a letter to shareholders, Dorsey stated, "Intelligence tools have changed what it means to build and run a company. We're already seeing it internally. A significantly smaller team, using the tools we're building, can do more and do it better."
He added, "I don't think we're early to this realization. I think most companies are late. Within the next year, I believe the majority of companies will reach the same conclusion and make similar structural changes." Following this announcement, Block's shares surged nearly 20%, highlighting investor approval of cost-cutting measures driven by AI efficiencies.
Even AI Beneficiaries Face Pressure Amid Market Uncertainty
Even companies benefiting from AI faced pressure during the market downturn. Nvidia fell by 2.6%, extending losses from the previous session despite reporting better-than-expected profit and projecting higher revenue for the current quarter. Broadcom also dropped by 2.6%, while other chipmakers experienced similar declines.
Investors are increasingly questioning whether major AI spenders such as Amazon and Alphabet can generate sufficient returns to justify their multi-billion-dollar investments in artificial intelligence technologies.
Salesforce fell by 4.4%, surrendering gains from the previous day despite posting stronger-than-expected profit, indicating broader market skepticism.
Gainers and Mixed Performances in Other Markets
Among the gainers, Netflix rose by 8.6% after withdrawing from its bid to acquire Warner Bros. Discovery's studio and streaming business. This move cleared the way for Skydance-owned Paramount to pursue a takeover, with Paramount Skydance shares climbing 2.2%, while Warner Bros. Discovery slipped 1.9%.
In the bond market, the yield on the 10-year Treasury stood at 3.97%, rising after the inflation report but still below Thursday's level of 4.02%.
Energy Markets React to Geopolitical Tensions
Energy markets saw sharp movements amid geopolitical tensions. US benchmark crude oil rose by 3.2% to $67.27 per barrel, while Brent crude gained 3.1% to $73.04. Concerns over escalating tensions between the United States and Iran have heightened fears that any conflict could disrupt global oil supplies, contributing to price volatility.
Mixed Performances in Global Markets
Markets in Europe and Asia displayed mixed performances. South Korea's Kospi fell by 1% from a recent record high, while Hong Kong's Hang Seng advanced by 0.9%, reflecting varied investor reactions to global economic conditions.
