Stocks drop as AI exuberance worries linger; US yields jump
NEW YORK, Dec 12 : Major stock indexes fell on Friday, with technology-related shares dropping again as investors were wary of artificial intelligence bets, while the dollar edged higher and U.S. Treasury yields jumped.
Yields gained as investors weighed commentary from Federal Reserve officials who voted against the U.S. central bank's interest rate cut this week said on Friday they are worried that inflation remains too high to warrant lower borrowing costs. Rising yields also weighed on stocks.
Technology fell 2.9 per cent, the most of the major S&P 500 sectors as tech-related fears lingered. Cloud computing company Oracle earlier this week flagged massive spending and weak forecasts. A warning about margins from chipmaker Broadcom late on Thursday added to the concerns. Broadcom shares ended 11.4 per cent lower. Oracle fell 4.5 per cent on top of Thursday's almost 11 per cent plunge, while AI leader Nvidia was down 3.3 per cent.
Bruce Zaro, managing director at Granite Wealth Management in Plymouth, Massachusetts, said "continued disappointment and uncertainty over the AI trade and technology trade" pressured the market. "I would have thought this choppiness would have ended by now," he said, adding: "We're in a really, really good seasonal period. Typically mid-December through the last trading days of the year is traditionally the Santa Claus rally period."
Investors were optimistic about further U.S. interest rate cuts in 2026 after the Fed cut interest rates by 25 basis points on Wednesday, in a 9-3 decision, even though policymakers signalled that it will put further reductions on pause for now. Policymakers have expressed concerns about a cooling labor market as well as inflation that remains too high.
U.S. jobless claims data on Thursday showed the number of Americans filing new applications for unemployment benefits increased by the most in nearly 4-1/2 years last week.
The Bank of England is expected to cut rates next Thursday. The European Central Bank is expected to keep them steady, although traders are now speculating it could hike rates in 2026. The Bank of Japan is expected to hike rates after strong signals from Governor Kazuo Ueda.
The Dow Jones Industrial Average fell 245.96 points, or 0.51 per cent, to 48,458.05, the S&P 500 fell 73.59 points, or 1.07 per cent, to 6,827.41 and the Nasdaq Composite fell 398.69 points, or 1.69 per cent, to 23,195.17.
MSCI's gauge of stocks across the globe fell 6.39 points, or 0.63 per cent, to 1,008.88.
The pan-European STOXX 600 index ended 0.53 per cent lower.
U.S. 10-year Treasury yields rose after two straight sessions of declines. The yield on the benchmark U.S. 10-year Treasury note rose 5.1 basis points to 4.192 per cent and was up more than 5 basis points on the week, set for a second straight weekly climb.
Earlier, German government bond yields rose after hitting their highest level since March earlier this week, underscoring how investors have begun pricing in euro zone rate hikes. The divergence comes as traders still broadly expect U.S. rates to fall in the long term, despite Friday's jump in yields. Germany’s 30-year yield, more sensitive to long-term fiscal concerns, climbed to a fresh 14-year high of 3.498 per cent, up 3.5 basis points.
DOLLAR GAINS, POUND FALLS SLIGHTLY ON UK DATA
The U.S. dollar drifted higher against major currencies, also after falling in recent sessions, but was still set for its third straight weekly drop amid the prospect of interest rate cuts by the Fed next year.
Sterling eased after data showed the UK economy unexpectedly shrank in the three months to October. The pound edged down 0.2 per cent against the dollar to $1.3375, but not far from a seven-week peak hit on Thursday.
Against the yen, the dollar rose 0.2 per cent to 155.93 yen ahead of next week's BoJ meeting, where the broad expectation is for a rate hike. Reuters reported that the BoJ would likely maintain a pledge next week to keep raising interest rates, but stress that the pace of further hikes would depend on how the economy reacts to each increase.
The euro was flat at $1.1735 after hitting a more than two-month high on Thursday, while the dollar index, which measures the U.S. currency against six others, rose 0.1 per cent to 98.44.
COPPER PLUNGES FROM RECORD HIGH
Copper plunged more than 3 per cent, after hitting a record high earlier in the session, as renewed fears of the AI bubble bursting sparked a broad selloff of riskier assets.
Benchmark three-month copper on the London Metal Exchange fell as much as 3.5 per cent to $11,451.50 and was trading down 2.8 per cent at $11,537.50 as of 1700 GMT.
Oil prices closed lower and posted a 4 per cent weekly decline as a supply glut and possible Russia-Ukraine peace deal outweighed fears about the impact from the U.S. seizure of an oil tanker near Venezuela. U.S. crude fell 16 cents to settle at $57.44 a barrel and Brent fell 16 cents to settle at $61.12.
