Importance Score: 65 / 100 🔴
Stock Market Plunge Intensifies Amid Inflation Worries and AI Skepticism
Concerns over persistent inflation, weakening consumer confidence, and growing skepticism regarding the returns from artificial intelligence triggered a fresh wave of substantial selling in equities on Friday. The stock market experienced broad declines as investors reacted to economic data and corporate reports, furthering anxieties about future economic growth and the Federal Reserve‘s monetary policy.
Major Indices See Sharp Declines
The broad-based S&P 500 index decreased by as much as 2%, while the technology-heavy Nasdaq Composite fell by almost 3%. These drops positioned both indices to conclude their fifth week of losses in the past six weeks, with the Nasdaq breaching its previous low for the year, signaling heightened market volatility and investor unease.
Inflation Data Exceeds Expectations
Earlier on Friday, the Bureau of Economic Analysis released a report indicating that an inflation measure favored by the Federal Reserve rose more than anticipated in February. This development suggests that the central bank’s ongoing strategy to maintain elevated interest rates to counter accelerating price increases is encountering headwinds. Separately, a University of Michigan survey revealed escalating inflation expectations among consumers, who are increasingly factoring in the potential economic repercussions of President Donald Trump’s tariff policies.
Consumer Sentiment Deteriorates
The same economic report also highlighted a significant increase in forecasts for higher unemployment in the coming year, while expectations of improved personal finances within a year sharply declined. This erosion of consumer confidence adds to the prevailing economic uncertainties impacting market sentiment.
AI Investment Returns Questioned
These downward trends converged with mounting worries on Wall Street regarding the actual benefits derived from the massive investments in artificial intelligence (AI) witnessed over the last couple of years. These substantial investments had previously fueled some of the stock market’s upward momentum, but analysts are now questioning if the returns will justify the expenditures.
Nvidia Shares Decline, Reflecting AI Sector Concerns
Shares in chipmaker Nvidia experienced a decline of nearly 2% on Friday. The stock is now down 27% from its January peak, effectively erasing approximately $1 trillion in market value. This significant drop in Nvidia‘s stock price underscores the growing concerns about the AI sector’s near-term growth prospects and valuation.
Microsoft AI Spending Under Scrutiny
Earlier in the week, a Wall Street report indicated that Microsoft had reportedly abandoned plans for new data center projects in both the U.S. and Europe. This fueled speculation that the appetite for increased spending on AI infrastructure might be waning. Although Microsoft issued a statement, the company did not directly refute the specifics of the report.
Microsoft Statement on Infrastructure Investments
“Thanks to the substantial investments we have made to date, we are well-positioned to fulfill our current and growing customer demand,” a Microsoft spokesperson stated. The spokesperson further added that the company had increased its capacity more in the past year than in any preceding year.
Continued Growth Planned, but with Strategic Adjustments
“While we may strategically pace or adjust our infrastructure in certain areas, our growth trajectory remains strong across all regions,” the spokesperson continued. “This approach allows us to strategically invest and allocate resources towards future growth sectors.”
AI IPO Valuation Reduced Amid Market Jitters
The report concerning Microsoft emerged at a time when the anticipated valuation for an AI-related initial public offering (IPO) was being scaled back. Reuters reported that cloud-computing firm CoreWeave had significantly reduced both the proposed price range and the number of shares to be sold in its planned IPO this week. Indeed, CoreWeave‘s stock began trading on Friday below the target range it had initially sought, highlighting challenges in the current IPO market for AI companies.
Market Analysts Weigh In
“The market is currently facing pressure from multiple fronts. Uncertainty surrounding upcoming retaliatory tariffs, which would impact key exporting sectors like technology, is compounded by concerns about weakening consumer spending amid rising prices, particularly affecting discretionary sectors,” Scott Helfstein, head of investment strategy at Global X, told CNBC.
Inflation and Consumer Spending: A Near-Term Perspective
However, Helfstein suggested that the recent data on inflation and consumer spending “was not excessively negative” and might simply represent a temporary setback in near-term market sentiment. He posited that investors may be struggling to interpret and adjust to the Trump administration’s evolving economic policies.
Investors Appear to be Weathering Market Volatility
“Despite today’s sell-off and the broader market volatility observed in recent weeks, there has not been a significant shift of investment into money market funds. It appears that many investors are opting to weather this period of uncertainty,” Helfstein concluded.