Tech Stocks Suffer Losses as AI Growth Slows, While US Market Remains Steady Ahead of Fed Rate Cuts

The tech sector weighed down major indices on Friday as Wall Street concluded a volatile summer with muted activity. The Dow Jones Industrial Average declined 0.2%, the S&P 500 fell 0.64%, and the tech-focused Nasdaq Composite slipped 1.15%.

Despite this week’s dip, all three indices posted positive gains for August – 3.2% for the Dow, 1.91% for the S&P 500, and 1.58% for the Nasdaq Composite. This marks four consecutive months of gains for both the Dow and S&P 500, their best stretch in a year, while the Nasdaq has achieved five straight months of growth, its longest streak since early 2024.

Recent months have seen stocks surge as trade tensions eased, corporate earnings surpassed expectations, and speculation grew that the Federal Reserve might reduce interest rates in September. The S&P 500 rose every week in August, with gains slowing down compared to the 5% increase seen in June and the 2.2% rise in July.

However, the momentum in artificial intelligence stocks has slowed, impacting market performance. On Friday, Dell Technologies (DELL) and Marvell Technology Group (MRVL), a semiconductor company, fell 8.9% and 18.6%, respectively, after releasing earnings that failed to impress Wall Street. Nvidia Corporation (NVDA), the core of the AI trade, dropped 3.36%, marking its first losing month since March.

Investor Jay Hatfield, CEO of Infrastructure Capital Advisors, commented, “Expectations for tech are sky-high. The companies have done well but not necessarily well enough to push them to the next level.” Analysts at Citi noted, “Earnings were strong, but AI-related growth outlooks showed a deceleration.”

Friday also saw Wall Street digest fresh inflation data. Stocks started the day on a negative note as July’s Personal Consumption Expenditures (PCE) index rose 2.6% year-over-year, in line with expectations. The Federal Reserve’s preferred inflation gauge – a core PCE measure that strips out volatile food and energy prices – also increased 2.9% year-over-year in July, marking the highest annual pace since February but remaining consistent with forecasts.

Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, stated, “Inflation is increasing ever so slightly, right in line with forecasts.” The market closed August on a relatively subdued note, with light trading ahead of the Labor Day weekend.

Traders have faced numerous headlines throughout August – from a weaker-than-expected jobs report to President Trump’s implementation of widespread tariffs and his administration’s efforts to oust Federal Reserve Governor Lisa Cook. Despite these challenges, stocks have continued to climb, supported by hopes for Fed rate cuts, stronger-than-expected corporate earnings, and the prospect of significant gains from an AI boom.

Approximately 98% of companies in the S&P 500 have reported second-quarter earnings, with 81% beating Wall Street’s expectations, according to FactSet data. James Reilly, Senior Markets Economist at Capital Economics, commented, “The US stock market is at an all-time high thanks in part to rapid earnings growth and expectations for that to continue.”

Fed Chair Jerome Powell’s remarks at a central banking forum in Jackson Hole last week suggested potential interest rate cuts could be on the horizon. While these comments highlighted concerns about a slowing labor market, investors and traders have been enthusiastic about the prospect of lower borrowing costs. The Russell 2000, an index tracking smaller companies sensitive to rates, soared 6.8% this month as investors adjusted to the possibility of rate cuts as soon as September.

The CBOE Volatility Index (VIX), a measure of market fear, is trading near its lowest levels of the year, signaling relative calm and confidence in markets. The S&P 500 reached above 6,500 points for the first time ever on Thursday, marking the index’s 20th record high this year.

Historically, when the S&P 500 achieves 20 or more all-time highs by the end of August, the index has been higher by the end of the year about 90% of the time with an average gain of 5.5%, according to Sam Stovall, Chief Market Strategist at CFRA Research.

However, September is often a challenging month for stocks, with the S&P 500 averaging a decline of 0.7%. Scott Wren, Senior Global Market Strategist at Wells Fargo Investment Institute, said he’ll be looking to buy more stocks if there’s a dip. “We’re probably overdue for a pullback now,” Wren stated, “and we think that if we do get some sort of a pullback here, we’ll be looking to lean more into stocks.”

The coming month will be packed with economic data, with trading set to resume on Tuesday following the Labor Day holiday on September 1.