US stock markets closed lower, primarily driven by a collective retreat in technology and semiconductor shares. The S&P 500 Index was down $0.47%, the Dow Jones Industrial Average dropped $0.22%, and the Nasdaq 100 Index fell by $1.09%. This downturn in chipmakers and AI stocks followed a recent rally and was exacerbated by signs of a weaker US labor market, as indicated by the June ADP employment change of +98,000, which missed expectations of +120,000. Fed Chair Warsh's comments, offering no specific guidance on interest rates, also contributed to market unease, though he signaled a move towards data-dependent decision-making and that inflation risks had eased.
Chipmakers and AI infrastructure stocks were particularly hard hit, leading the broader market lower. Notable declines included SanDisk and KLA Corp, both down over $7%, Lam Research down over $6%, and Applied Materials and Micron Technology dropping more than $5%. ARM Holdings Plc and Seagate Technology Holdings Plc were down over $4%, while Advanced Micro Devices, Marvell Technology, Intel, and Western Digital saw declines of more than $3%. Cloud-computing stocks Nebius Group NV and CoreWeave also fell significantly, by over $12% and $10% respectively, amid news of Meta Platforms' entry into the cloud infrastructure business.
In contrast to the broader tech downturn, Meta Platforms surged by more than $7% (with some reports indicating an $8.8% rise). This significant gain was driven by the company's announcement of plans to develop a cloud infrastructure business to sell access to its AI computing power and models. Software stocks also showed strength, with Atlassian Corp and Palantir Technologies climbing more than $5%, Salesforce leading gainers in the Dow Jones Industrials with a rise of over $4%, and Autodesk, Datadog, Intuit, ServiceNow, and Workday each up more than $3%. Adobe Systems also saw an increase of over $2%.
Looking ahead, investors are keenly awaiting the June non-farm payrolls report, due to be released soon, which is considered the next key catalyst for market direction. Despite the current market sentiment, a bullish factor for stocks is the outlook for strong Q2 earnings, with Bloomberg Intelligence forecasting a nearly $23% increase, following Q1's $30% blowout earnings. AI spending is projected to significantly contribute to this growth, accounting for nearly $60% of the S&P 500's earnings-per-share growth in Q2. The markets are currently pricing in a $36% chance of a +25 basis point rate hike at the next FOMC meeting on July 28-29. Concerns over high valuations and capital expenditure return cycles with AI stocks have been noted by some market participants. Geopolitical tensions, specifically concerning the US and Iran, also contributed to market caution.
