Wall Street closed sharply lower on Wednesday as market participants continued to book profits in highly overvalued AI semiconductor stocks. Escalation of the U.S.-Iran war in the Middle East also dented investors’ confidence in risky assets like equities. Moreover, hot inflation data made the situation even worse. All three major stock indexes ended in negative territory.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) tumbled 1.9% or 953.33 points to close at 49,918.78, marking the blue-chip index’s first close below the crucial technical barrier of 50,000 since May 19. Notably, 20 components of the 30-stock index ended in negative territory while 10 ended in the green.
The tech-heavy Nasdaq Composite finished at 25,169.50, sliding 2% or 509.32 points due to the weak performance by AI semiconductor giants. The S&P 500 slipped 1.6% or 119.66 points to finish at 7,266.99. However, nine out of 11 sectors of the broad-market index ended in positive territory while two finished in negative territory.
The Health Care Select Sector SPDR (XLV), the Real Estate Select Sector SPDR (XLRE) and the Materials Select Sector SPDR (XLB) rose 1.3%, 2.1% and 1.6%, respectively. On the other hand, the Information Technology Select Sector SPDR (XLK) and the Energy Select Sector SPDR (XLE) fell 1.9% and 1.6%, respectively.
The fear gauge CBOE Volatility Index (VIX) climbed 11.8% to 22.22. A total of 20.7 billion shares were traded on Wednesday, higher than the last 20-session average of 20.6 billion. Decliners outnumbered advancers on the NYSE by a 1.87-to-1 ratio. On the Nasdaq, a 1.77-to-1 ratio favored declining issues.
AI Trade Fizzles
AI-powered semiconductor stocks continued their decline on Wednesday rebounding on Monday recouping the disaster they suffered on Friday to a great extent. Strong jobs data for May along with the solid fundamentals of the U.S. economy, raised concerns that the Fed is unlikely to cut the benchmark interest rate anytime soon this year. The sticky inflation rate and recent spike in the yields of U.S. government bonds rang an alarm that the central bank may, in fact, raise the Fed fund rate by the end of this year.
Consequently, stock prices of major AI semiconductor developers such as, Broadcom Inc. (AVGO – Free Report) and NVIDIA Corp. (NVDA – Free Report) fell 5.1% and 3.7%, respectively. Both stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
U.S.-Iran War Escalates
The Middle East war has escalated since the beginning of this week. Tuesday evening, U.S. Central Command said, “U.S. forces launched strikes against Iran in response to [Monday’s] downing of a U.S. Army Apache helicopter.”
The major averages fell after Trump pledged more Iran attacks, saying that “we’re going to be attacking them very hard.” He wrote early Wednesday that Iran has “taken too long to negotiate a deal that would have been great for them, now they will have to pay the price!!!”
Following these developments, prices of crude oil advanced. The U.S. benchmark — West Texas Intermediate crude — futures rose 2.07% to $90.03 a barrel, while the global benchmark — Brent crude — futures increased 1.8% to settle at $93.10.
Economic Data
The Department of Labor reported that the Consumer Price Index (CPI) rose 0.5% for the month of May, in line with the Zacks Consensus Estimate. The metric for April was 0.6%. Year over year, the headline CPI increased 4.2% in May, marking its highest monthly gain since April 2023. The reading for April was in line with the Zacks Consensus Estimate but well above April’s data of 3.8%.
Core CPI (excluding volatile food and energy items) rose 0.2% in May, below the Zacks Consensus Estimate of 0.3% and April’s data of 0.4%. Year over year, core CPI increased 2.9% in May, in line with the Zacks Consensus Estimate.
For the week ended June 5, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 7.2 million barrels from the previous week.
