U.S. equity markets delivered a mixed performance in the week ending June 24, as a sharp selloff in semiconductor stocks overshadowed gains in other sectors. The S&P 500 fell 2%, while the Nasdaq Composite dropped 4.6%, dragged down by heavy losses in chipmakers. In contrast, the Dow Jones Industrial Average added 0.6% and the small-cap Russell 2000 rose 1%, highlighting a rotation away from technology.
The PHLX Semiconductor Index plunged 7.9% for the week, its worst weekly decline since early April, with a 5.3% drop on Friday alone. The selloff raised fresh doubts about the profitability of artificial intelligence investments and the sustainability of capital spending in the sector. David Stubbs, chief investment strategist at AlphaCore Wealth Advisory, noted that while it is too early to call a major correction in tech, questions about AI profits and spending are unlikely to dissipate soon.
Investors withdrew nearly $20 billion from technology sector funds during the week, reversing the prior week's record inflows of $21.46 billion, according to LSEG Lipper data. Overall, U.S. equity funds saw net outflows of $3.53 billion, unwinding part of the $37.63 billion inflow from the previous week. The rotation out of tech was evident as advancers outpaced decliners on the S&P 500 by a 1.8-to-1 ratio, with 35 stocks hitting new highs versus just five new lows. On the Nasdaq, 263 stocks reached new highs while 169 set new lows.
Trading volume was elevated, with 30.1 billion shares changing hands, well above the 20-day average of 23.1 billion. The action favored stock pickers, as individual names stood out. Apple (AAPL) climbed 3.1% on Friday, recovering from earlier losses tied to higher prices for iPads and MacBooks. Moderna (MRNA) surged nearly 13% after a presentation to investors. ON Semiconductor (ON) tumbled nearly 24% after announcing an all-stock acquisition of Synaptics (SYNA) for about $7 billion.
Interest rate concerns re-emerged as a key driver. The May Personal Consumption Expenditures (PCE) price index rose 4.1% year over year, the first time above 4% since April 2023, while core PCE stood at 3.4%. Scott Anderson, chief U.S. economist at BMO Capital Markets, said the data keeps the Federal Reserve on hold and raises the possibility of a rate hike at upcoming meetings. However, a Reuters poll of economists showed more than three-quarters expect the federal funds rate to remain at 3.50%-3.75% through 2026. Vanguard's Josh Hirt described holding as the most appropriate stance, while Bank of America's Stephen Juneau called the Fed's latest projections a materially hawkish surprise.
The upcoming June payrolls report, due Thursday, is the main event for markets. Economists polled by Reuters expect nonfarm payrolls to rise by 110,000, down from 172,000 in May. Doug Huber, deputy chief investment officer at Wealth Enhancement, warned that a strong jobs number could be interpreted negatively by markets, as it might reinforce hawkish Fed expectations. Julia Hermann, global market strategist at New York Life Investment Management, noted that tech leadership has been dominated by semiconductor names, and the key question is whether higher rates could impact the more cyclical components of the market.
The University of Michigan's final June consumer sentiment index rose to 49.5 from 44.8 in May, but over half of consumers reported that high prices are hurting their personal finances for the third consecutive month. One-year inflation expectations edged down to 4.6% from 4.8%. Markets will be closed on Friday, July 3, for Independence Day, making this a four-day trading week. Nike (NKE) is scheduled to report earnings, ahead of the busier second-quarter season later in July.
