The Big Picture
The artificial intelligence trade, the engine of this year's rally, had its worst week in four months. The Nasdaq Composite fell 4.5% to 26,140.03, its steepest weekly decline since June, and the technology sector fund dropped 7.7%. The S&P 500 lost 1.9% to 7,659.44, giving back all of the prior week's gain and then some, one week after setting a record. The Russell 2000 (an index of 2,000 smaller US companies) fell 3.0% to 2,721.37. The Dow Jones Industrial Average, which holds fewer technology names, went the other way and rose 0.7% to 52,002.41.
What changed was not demand for AI chips but confidence in how the build-out gets paid for. The companies building AI data centers have borrowed heavily to do it, and this week the cost of insuring their debt against default jumped to record levels just as two inflation reports came in hotter than expected and kept another Federal Reserve rate hike on the table. Oil added to the pressure: WTI crude, the US benchmark, rose about 10% for the week to settle at $101.41 a barrel, back above $100 for the first time in a month. The VIX (the CBOE Volatility Index, a gauge of how much turbulence the market expects over the next 30 days) jumped to 19.99 from 14.84, after touching 22.31 on Friday, its highest intraday level since June.