Markets ended the week lower, dragged down by renewed concerns about lofty AIvaluations and the hundreds of billions of dollars being spent by chipmakers,hyperscalers, and other companies to develop their AI infrastructure. Reflecting thetech-oriented nature of the week’s selloff, the tech-heavy NASDQ ended down4.6%, while the equally-weighted S&P 500 index, which effectively deemphasizesthe largest companies in the standard market-cap weighted S&P 500 index, endedup 1.6%, closing at a new record high.
The selloff in AI-related stocks mirrored prior selloffs over the past year, driven bysimilar concerns. Those ultimately proved to be consolidations, after which AI stocksrebounded, typically following positive earnings reports or other news of continuedstrong AI demand. Adding to the week’s selloff was the specter of higher interestrates fueled by the Fed’s June FOMC meeting. The combination of the Fed’s revised“dot plot,” showing half of members now expect higher rates by year end, and newFed Chair Kevin Warsh’s comments that the Fed still was work to do to lowerinflation, shifted market expectations of a rate hike from December to October.
After a quiet start to the week, Middle East tensions spiked on Friday as the USconducted airstrikes against Iran in response to an Iranian attack on a cargo vesseltransiting the Strait of Hormuz the day before. By Sunday evening, as of the time ofthis writing, headlines suggested the two sides were once again ready to moveforward with the peace process. The incident, however, highlighted the overallfragility of the current process.
