AI trade stumbles, cyclicals shine amid tech earnings and FOMC decision
AI trade stumbles, cyclicals shine amid tech earnings and FOMC decision
The stock market closed the week with mixed results, driven by the Federal Reserve’s policy decision, commentary from Fed Chair Powell, and sharp swings in tech and AI-related stocks.
The S&P 500 (-0.6% WTD), DJIA (+1.1% WTD), and Nasdaq Composite (-1.6% WTD) reflected divergent trends across large-cap and growth-heavy indexes, while smaller-cap benchmarks continued to show relative strength: the Russell 2000 (+1.2% WTD) and S&P Mid Cap 400 (+0.9% WTD) both advanced over the week.
Investors digested a 25-basis-point rate cut from the FOMC on Wednesday, alongside a “hawkish cut” message in which the Fed signaled that additional easing would likely be gradual. Fed Chair Powell emphasized a meeting-by-meeting approach, noting that the Fed funds rate is now within a broad range of estimates of its neutral value. The combination of a rate reduction with cautious forward guidance provided a dovish tilt that supported cyclical, domestic-focused, and financial stocks.
The week’s sector performance highlighted both rotation and volatility. The cyclical financials (+2.3% WTD), materials (+2.4% WTD), and industrials (+1.4% WTD) sectors led the advance as investors responded to sectors that benefit from lower borrowing costs and improved macro projections.
The information technology (-2.3% WTD) and communication services (-3.2% WTD) sectors suffered as mega-cap AI and chip-related names retraced early-week gains.
Oracle (-7.8%) and Broadcom (-12.7%) exemplified the tech weakness, retreating sharply despite beating earnings and issuing positive guidance. The AI trade selloff illustrated market sensitivity to growth expectations in its largest names.
Overall this week's action was a sharp contrast to the sideways drift that preceded the December FOMC meeting. The immediate reaction to that rate cut, and optimistic outlook from the Fed helped push the DJIA to record highs, with the S&P 500 also notching a record closing high on Thursday. However, sentiment-based double-digit selloffs to two prominent AI plays pushed the major averages from record highs and rekindle valuation concerns that have created choppy action across tech names in recent months.
- Russell 2000: +1.2% WTD
- DJIA: +1.1% YTD
- S&P Mid Cap 400: +0.9% WTD
- S&P 500: -0.6% WTD
- Nasdaq Composite: -1.6% WTD
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