Stocks fell hard Friday, capping the Nasdaq’s worst week since June, as investors got nervous about the money behind the AI boom and oil prices jumped again. The Nasdaq dropped about 2.1% on the day and more than 4% for the week. The S&P 500 fell about 1.1%, and the Dow lost about 0.3%.
“There is some fear in the market,” said Rob Haworth of U.S. Bank Wealth Management, Reuters reported. “High oil prices, in particular, tend to weigh on the price/earnings multiple of stocks.”
Why are AI stocks falling?
Debt. Companies building AI data centers have borrowed huge sums, and investors are starting to ask whether they’ll earn enough, fast enough, to pay it back, especially with interest rates expected to rise. CoreWeave, a data center company backed by Nvidia, fell about 12% Friday, and its bonds sold off so sharply this week that their yields topped 15%, a level usually seen on risky debt. Broadcom fell more than 4%, and an index of chip stocks dropped for an eighth straight day.
Reuters also reported that some investors are weighing a lower valuation for AI company Anthropic in its upcoming IPO, another sign the market is getting pickier about AI prices.
Why did oil prices go up?
Middle East supply worries. U.S. oil rose about 2.5% to near $99 a barrel Friday as the Iran war dragged on. Higher oil means higher gas prices, and it’s already the biggest reason inflation hit 3.7% in September. Hotter-than-expected consumer and wholesale inflation reports this week added to fears that the Fed will raise rates again.
What does the stock drop mean for my 401(k)?
Probably less than the headlines suggest, at least so far. The Dow actually rose about 0.7% this week, and the losses are concentrated in tech and AI names. But if your retirement account is in an S&P 500 or tech-heavy fund, a big share of it rides on a handful of AI companies, since most of the index’s gains this year have come from them. For long-term investors, the usual advice holds: don’t sell in a panic, and check whether you’re more concentrated in tech than you meant to be. Earnings from Tesla, Meta and Procter & Gamble next week will be the next test.
What is the VIX, and why did it spike?
The Cboe Volatility Index, known as the VIX or Wall Street’s “fear gauge,” measures how much investors are paying to protect themselves against big swings in the S&P 500. It jumped above 22 on Friday for the first time in four months, CNBC reported, up from about 16.5 at Thursday’s close, according to St. Louis Fed data. Traders also placed large bets that it will stay high through November. A rising VIX means people expect bigger moves. It doesn’t predict which direction, and it isn’t a crash signal on its own.
Rumors spread online Friday that a big hedge fund had collapsed. No major news outlet has confirmed that, and BeezLoop hasn’t either.
Is Monday the Black Monday anniversary?
Yes, by coincidence of the calendar. On Oct. 19, 1987, the Dow fell 22.6% in a single day, its biggest one-day percentage drop ever, and this year Oct. 19 lands on a Monday again. That’s why “Black Monday” is trending alongside the VIX. Dates don’t move markets, though. What will matter next week is earnings from Tesla and Meta, oil prices and whether the selling in AI stocks spreads or calms down.
The BeezLoop Take
This isn’t a crash. It’s a reality check that was overdue. For two years, AI companies have been valued on promises, and some of the firms building the data centers borrowed as if the money would always be there. When a company’s bonds yield over 15%, lenders are telling you they’re worried about getting paid back.
Add an expensive war pushing up oil, and a Fed that may raise rates to fight the inflation that comes with it, and it’s no surprise investors pulled back. Regular people should watch their concentration in tech, not try to time the market.
The open question: is this the start of the AI bubble deflating, or just a bumpy week before earnings remind investors why they bought in?
Also on BeezLoop: inflation hit 3.7% in September, and Amazon’s talks to buy AI chip startup Decart.
Sources: Reuters via Yahoo Finance · Yahoo Finance live coverage · CNBC Television (video)
