AI Stocks Slip as Wall Street Retreats from Records
Wall Street experienced a downward trend on Tuesday, largely influenced by a retreat in shares of technology companies that had soared on the back of artificial intelligence enthusiasm. The S&P 500 saw a 0.4% decline, marking its third consecutive modest loss since achieving an all-time high just last week. While the Dow Jones Industrial Average managed a slight gain of less than 0.1%, the Nasdaq composite, heavily weighted with tech stocks, fell by 1%.
A significant factor in the market’s dip was Nvidia, whose advanced chips are foundational to much of the current AI boom. The company’s stock slipped 2%. Another prominent AI beneficiary, Palantir Technologies, suffered an even larger setback, dropping 5.7%—the most substantial loss within the S&P 500. This decline comes as investor bets against its stock, known as “short interest,” have sharply increased this year. Only Meta Platforms, the parent company of Facebook and Instagram, has seen a greater surge in such bearish wagers; Meta itself fell 1.7% on Tuesday.
These market movements unfold amid growing skepticism that many stock prices have escalated too rapidly, becoming overly expensive. One common strategy for companies to justify their valuations is to demonstrate robust profit growth. Cybersecurity firm Palo Alto Networks offered a contrasting narrative, climbing 4.7% after reporting quarterly earnings and revenue that surpassed analysts’ expectations. The company also issued optimistic profit and revenue forecasts for its upcoming fiscal year, exceeding Wall Street’s projections. Similarly, Home Depot’s 3.1% rise provided the primary uplift for the Dow, which had earlier in the day flirted with its own record set in December. Despite reporting results slightly below analyst estimates for its latest quarter, the retailer still delivered revenue growth and reaffirmed its full-year revenue and profit forecasts.
Attention will soon turn to other major retailers, with Lowe’s and Target scheduled to report earnings on Wednesday, followed by Walmart and Ross Stores on Thursday. However, the week’s most anticipated event for Wall Street is slated for Friday, when Federal Reserve Chair Jerome Powell is set to deliver a crucial speech in Jackson Hole, Wyoming. This venue has historically been the stage for significant Fed policy announcements, and market participants are hopeful that Powell might signal upcoming interest rate cuts.
The Fed has maintained stable interest rates throughout the year, largely due to concerns that potential tariffs imposed by former President Donald Trump could reignite inflation. Yet, a surprisingly weak national job growth report has shifted the narrative, leading many traders to widely anticipate a Fed rate cut at its next meeting in September, aiming to stimulate the economy. This expectation has already seen Treasury yields decrease notably in the bond market, continuing their descent on Tuesday, with the yield on the 10-year Treasury easing to 4.31% from 4.34% late Monday.
Despite the prevailing optimism, strategists at Bank of America have cautioned that Powell’s address might not be as dovish as the market expects. He could adopt a non-committal stance, potentially even discussing the grim prospect of “stagflation”—a challenging economic scenario where stagnation coincides with persistent high inflation, for which the Fed possesses no easy remedy.
In other notable corporate news, Tegna shares rose 4.1% following an announcement that Nexstar Media Group plans to acquire the owner of 64 television stations for $22 per share in cash, valuing the deal at $6.2 billion including debt. Nexstar, which operates The CW and numerous local television broadcasters, saw a modest 0.4% gain. Both companies expressed that their combination would expand their reach and enhance their competitiveness against major tech and established media entities. Conversely, biopharmaceutical company Viking Therapeutics experienced a sharp 43% decline after releasing clinical trial results for its oral tablet designed to treat obesity and other metabolic disorders. On the international front, European indexes advanced, while Asian markets saw modest declines. Tokyo’s Nikkei 225 index dipped 0.4% after market heavyweight SoftBank Group Corp. fell 4% following its announcement of a $2 billion stake in U.S. chipmaker Intel, which itself climbed 7.7%. Separately, U.S. Commerce Secretary Howard Lutnick confirmed in an interview that the Trump administration might acquire an ownership stake in Intel.