US stock futures pointed to a weak start on Friday, June 26, as the global technology sell-off resurfaced, overshadowing optimism sparked by Micron Technology's blockbuster fiscal third-quarter results. The Dow Jones Industrial Average fell 116.9 points, or 0.23%, to 51,803.77, while the S&P 500 dropped 44.7 points, or 0.61%, to 7,312.74 and the Nasdaq Composite plunged 253.2 points, or 1.00%, to 25,105.414 at the opening bell, according to The Economic Times. The weakness persisted following the sell-off in SoftBank, Samsung Electronics, and SK Hynix, which triggered a second trading suspension within days in Seoul. In the previous session, the Nasdaq erased all of its early gains and closed 1% lower, as a 6% slump in Apple Inc.'s shares offset sharp gains in semiconductor stocks, particularly Micron Technology.
Market sentiment was significantly impacted by US inflation increasing further in May, breaking above 4.0% for the first time in three years on higher energy prices, according to The Economic Times. The US Personal Consumption Expenditures (PCE) Price Index—the Federal Reserve's preferred inflation gauge—rose 4.1% in the 12 months through May, marking the first print above 4% since April 2023 and largely driven by higher energy prices following the Iran war. Markets are currently pricing in an 80% probability of a Federal Reserve rate hike in December, compared with 85% before the release of the PCE data and 61% before last week's Fed policy meeting, as reported by CME FedWatch data. A final reading of first-quarter GDP data showed the economy grew by 2.1%, compared to a prior estimate of 1.6%, while jobless claims data showed a higher-than-expected fall in the number of Americans filing for unemployment benefits.
The technology sector faced significant pressure as technology shares reversed early gains to move lower, weighing on the Nasdaq as investors worried about hyperscaler spending on artificial intelligence and who foots the bill, according to The Economic Times. Concerns over elevated valuations and whether future earnings can justify the massive capital expenditure currently being deployed have prompted investors to rotate out of semiconductor and technology stocks, leaving the Nasdaq 100 on track to end the week down around 3%. SoftBank Group Corp.'s shares plunged 13% after reports that OpenAI may delay its initial public offering, postponing potential returns for its Japanese backer, with The New York Times reporting that the ChatGPT maker is now leaning towards delaying its IPO until 2027. Optimism about artificial intelligence has supported Wall Street's recent rally, but analysts noted that more investors have been questioning lofty spending on infrastructure expansion by hyperscalers. A 2.3% drop in Microsoft was the heaviest weight on the market, while Oracle slumped 4.6% and Exxon Mobil fell 2% and Chevron lost 2.6%.
Crude oil prices remained under pressure on Friday, with Brent crude futures falling below $73 a barrel, the lowest level since February 27, as shipping traffic through the Strait of Hormuz continued to recover, according to Live Mint. So far this week, Brent crude is down 9%, heading for a third consecutive weekly decline and on track to post its biggest monthly drop since March 2020. US West Texas Intermediate (WTI) crude futures slipped 4% to an intraday low of around $69 a barrel. The decline in crude oil prices has eased global inflation concerns and reduced fears of imminent interest rate hikes by major central banks, including the US Federal Reserve. The Strait of Hormuz, which typically handles nearly one-fifth of the world's oil and gas shipments, had witnessed limited traffic for more than three months due to the blockade. However, the recent peace agreement between the US and Iran has led to a recovery in shipping volumes through the Strait, with the US decision to allow the resumption of Iranian crude exports further improving market sentiment.
Market focus remains on Thursday's Personal Consumption Expenditures (PCE) data, with the closely watched Personal Consumption Expenditures Price Index offering insight on the monetary policy path. The US dollar largely held on to its recent gains, putting it on course for one of its strongest monthly performances in more than a year, according to Live Mint. Domestic brokerage firm Vested Finance noted that the current market correction does not signal the end of the artificial intelligence theme but rather reflects the extremely high expectations that had been built into AI-related stocks. The brokerage explained that investors have aggressively bought companies supplying memory chips, networking equipment, and AI infrastructure over the past year, betting that spending on AI would continue at breakneck speed, pushing valuations to record levels. The central bank will get an update on inflation Thursday, when its preferred measure for prices is released, with the yield on 10-year Treasuries advancing five basis points to 4.51%.
