Wall Street Hit as AI Stocks Decline and Oil Prices Surge

On Tuesday, Wall Street experienced a sharp decline, driven primarily by falling artificial-intelligence (AI) stocks. The S&P 500 dropped 0.4% despite the majority of stocks in the index showing gains. The slump in AI stocks led to a 1.2% fall for the Nasdaq composite, and the Dow Jones Industrial Average decreased by 130 points, or 0.2%, from its record high.

Market Impacts from Asia

The downturn began in Asia, particularly affecting Samsung Electronics, which saw a 6.9% decrease in Seoul. The tech giant’s preliminary second-quarter performance was strong, with predictions of an operating profit surge of about 1,800% compared to last year. Despite analysts being impressed with these figures, investors were not satisfied, given the substantial rise in Samsung’s stock over the year.

Pressure on AI Stocks

Wall Street’s AI stocks have faced recent pressures due to concerns over inflated stock prices and doubts about AI’s ability to generate sufficient productivity and profits. Significant declines included Advanced Micro Devices (down 6.5%), Intel (down 9.7%), and Micron Technology (down 4.7%). Furthermore, SpaceX, which owns xAI, fell 6.8% during its first trade after inclusion in the Nasdaq 100 index.

Additional Companies Affected

Vertex Pharmaceuticals slid 1.4% after announcing its cash purchase of Crinetics Pharmaceuticals at $85 per share, which caused Crinetics to soar by 98.7%. Rivian Automotive experienced an 18.1% drop following its decision to sell 75 million shares, affecting earlier shareholders’ ownership stakes.

Overall Market Performance

The S&P 500 closed 33.58 points lower at 7,503.85. The Dow Jones Industrial Average fell 130.76 points to 52,925.15, and the Nasdaq composite sank by 302.47 points to 25,818.69.

Oil Price Influence

Stocks also faced pressure from rising oil prices after reports of three tankers being hit by projectiles in the Strait of Hormuz by the British military. A U.S. decision to revoke a license for Iranian oil sales amid tensions with Iran further hampered expectations for the full reopening of the strait to oil tankers. Brent crude increased by 3%, settling at $74.16 per barrel.

Higher oil prices contributed to inflation concerns, leading to rising Treasury yields. The 10-year Treasury yield increased from 4.48% late Monday to 4.54%, following a spike from 3.97% before rising tensions began. Elevated yields have been troubling investors since the earlier surge in oil prices above $100 per barrel, prompting fears of potential interest rate hikes by central banks to control inflation, impacting economic growth and investment prices.

Global Stock Market Reactions

International stock markets also reacted, with South Korea’s Kospi dropping 4.9%. Major declines were recorded in Japan’s Nikkei 225, which fell 2.1%, and Germany’s DAX, which lost 1.4%.

Overall, the day marked significant shifts across global markets due to differing sector pressures and international developments, illustrating the intertwined nature of global economic activities and fluctuations.

Contributing to this report were AP Business Writers Matt Ott and Elaine Kurtenbach.