Investors head into next week with the United States stock market on shaky ground, and inflation data due on Tuesday is the first test of whether the selling in technology shares has run its course. The October consumer price index lands after a week in which the Nasdaq Composite fell into correction territory and the broad market recorded its worst week since June.
Stocks were slammed on Thursday by concern that sweeping victories by Democrats in Tuesday’s midterm elections would slow the buildout of artificial intelligence data centers. The tech-heavy Nasdaq closed Thursday nearly 12 percent below its October 6 record high, past the 10 percent drop that marks a correction. The S&P 500 technology sector sank 7.3 percent, while the Philadelphia Semiconductor Index tumbled more than 12 percent, with both posting their largest one-day falls in more than six years.
The scale of Thursday’s drop stood out even in a week that began with a rally. The Dow Jones Industrial Average rose 1,569 points on Wednesday after the midterm results, before the market turned on concern that a Democratic Congress would tighten rules on artificial intelligence and slow data-center construction. Thursday’s rout erased nearly $3 trillion in market value from S&P 500 companies, according to Reuters, and pushed the Nasdaq into correction territory in a single session.
Technology shares led a modest rebound on Friday, but the major indexes still ended the week lower. The Nasdaq rose 1.09 percent to 24,579.42, the S&P 500 added 0.31 percent to 7,376.86, and the Dow Jones Industrial Average fell 0.46 percent to 51,285.73. For the week, the S&P 500 fell 2.7 percent, the Nasdaq lost 3.4 percent, and the Dow slipped 0.9 percent, the broad index’s worst week since June. The week left investors waiting on inflation data to set the next move.
Friday also brought a stronger than expected jobs report. Employers added 165,000 jobs in October, well above the 65,000 that economists surveyed by Reuters had expected, and the unemployment rate fell to 4.1 percent. September payrolls were revised up to 60,000 from 29,000, and August was revised up to 186,000, a combined upward revision of 84,000. The figures pushed up bets on a rate increase, rather than easing them. The focus now turns to the inflation data due Tuesday.
Inflation data and the December rate decision
Tuesday brings the October consumer price index, the most closely watched inflation measure and the last major price reading before the Federal Reserve meets on December 8 and 9. Investors expect the central bank to raise rates in December to fight inflation, and the inflation data will shape that call. After the jobs report, futures markets put the chance of a December increase at about 78 percent, according to LSEG data.
Investors will also read the inflation data for clues about the rate path into 2027, with about two more standard 25-basis-point increases expected in total for this cycle. As of Thursday’s close, technology was underperforming the S&P 500 over the past month by its largest amount since May 2002, according to Keith Lerner, chief investment officer at Truist Advisory Services. The gap shows how far the week’s selling reached beyond a single day’s drop.
Inflation data after a week of tech selling
Earnings will add to the week’s tests, and they land alongside inflation data that could reset rate expectations. Reports are due from CoreWeave, Applied Materials and Cisco Systems, three companies tied closely to spending on artificial intelligence hardware and networks. Their results will show whether demand for chips and equipment is holding up after a week in which investors questioned the pace and cost of the data-center buildout.
Kevin Hassett, director of the National Economic Council, said the Democratic election wins would not stop the data-center buildout, and chip shares steadied on Friday. The Philadelphia Semiconductor Index rose more than 4 percent during the session after its Thursday slide, and Nvidia gained 5.6 percent. The rebound recovered only part of the week’s losses, and the index stayed well below its October high.
What traders watch next
More earnings from retailers and technology firms are due in the coming days. But the inflation data comes first, and it arrives with the market already braced for a hawkish message. A soft reading could ease rate fears; a hot one would add to them. Either way, traders will get their answer on Tuesday.
Volatility stayed high into the weekend. The Cboe Volatility Index eased to about 25.6 on Friday from 28.09 on Thursday, still above its level before the election. The 10-year Treasury yield rose to 4.86 percent after the jobs report, a sign that strong hiring had pushed rate-hike bets higher rather than lower. A soft inflation data reading on Tuesday would be the first chance to reverse that move.