Dow Soars to Record High, But AI Stocks Face Volatility

Global financial markets navigated a complex landscape over the past week, culminating in advancements across European and Asian shares on Friday. This positive momentum followed a new record set by the Dow Jones Industrial Average, even as underlying currents revealed mixed performances, particularly within the influential technology sector. U.S. markets were closed on Friday for the Independence Day holiday, but futures for the S&P 500 and Dow indicated upward movement, gaining 0.4% and 0.2% respectively, reflecting a cautious optimism.

On Thursday, the Dow Jones Industrial Average demonstrated robust growth, rallying by 594 points, or 1.1%, to close at a new high of 52,900.07. In contrast, the S&P 500 remained largely unchanged, edging up by less than 0.1% to 7,483.24, despite a majority of its constituent stocks posting gains. The Nasdaq composite, heavily weighted with technology companies, saw a decline of 0.8% to 25,382.67, erasing earlier gains. This divergence was largely attributable to significant drops in computer chip companies, which, despite their integral role in the artificial-intelligence boom, tempered broader market enthusiasm.

A pivotal economic indicator influencing market sentiment was the U.S. jobs report for the previous month, which showed employers adding 57,000 jobs to their payrolls. While indicative of economic growth, this figure fell considerably short of the 100,000 jobs economists had anticipated and represented a slowdown from May's hiring pace. Paradoxically, this weaker-than-expected jobs data offered a silver lining: it could alleviate inflationary pressures that have been accelerating globally, partly due to spikes in oil prices caused by the war with Iran. With oil prices now settling back below their pre-war levels, a continued deceleration of inflation in the coming months could reduce the Federal Reserve's urgency to raise interest rates multiple times this year. Such a development is generally favored by investors, as lower interest rates can stimulate the economy by making borrowing more affordable for U.S. households and businesses, and typically provide an upward impetus to stock prices and other investments.

The bond market reacted swiftly to this economic outlook. The yield on the 10-year Treasury, which had reached 4.50% earlier in the day, immediately fell back to 4.46% after the hiring data was released, eventually settling at 4.48%. Market participants adjusted their expectations for Federal Reserve policy, with traders now assigning an 82% probability that the Fed, under its new chairman Kevin Warsh, will refrain from raising the federal funds rate at its next meeting later this month. This marks a notable increase from the 71% chance perceived just a day earlier. Brian Jacobsen, chief economic strategist at Annex Wealth Management, commented that the labor market does not appear to be overheating, which could provide the Fed with the necessary flexibility to observe inflation trends further before committing to rate hikes.

A significant headwind for the broader market, particularly for U.S. indexes on Thursday and Friday, continued to be the performance of computer chip companies. These stocks have faced intense selling pressure amid growing concerns that their valuations became stretched during the fervor surrounding artificial intelligence. Investors worried that the substantial investments in chips and data centers might not yield the corresponding levels of profit and productivity growth initially hoped for. Micron Technology, a memory maker, erased an early gain to drop 5.5% on Thursday and again on Friday, following a steeper 10.6% plunge earlier in the week. Nvidia, a behemoth in the AI sector with a market value approaching $4.7 trillion, fell 1.4% on both days, its movements exerting a disproportionately heavy weight on the S&P 500. Lam Research also experienced a sharp decline, sinking 10.2% during this period.

In contrast to the chip sector's struggles, companies within the cryptocurrency industry displayed notable strength. This surge was primarily driven by a roughly 2% increase in the price of Bitcoin on Thursday, rebounding after dropping near its lowest level since 2024. Consequently, Robinhood Markets saw its shares rise by 3.8%, and Coinbase Global gained 3.9%. Bitcoin extended its gains into early Friday, rising an additional 0.5%. Other individual stock highlights included National Beverage, the parent company of LaCroix sparkling waters, which climbed 7.5% following the announcement of a special dividend. Retailer Dollar Tree also saw a 2.4% increase after approving a program to buy back up to $2.5 billion of its stock.

Internationally, Asian stock markets showed a significant rebound on Friday, recovering from two bruising tech-led sessions earlier in the week. South Korea’s Kospi index, which had plunged nearly 8% on Thursday, surged by 5.8% to close at 8,088.34, with major chipmakers Samsung Electronics and SK Hynix leading the charge with gains of 8.2% and 10.9% respectively. In Tokyo, the Nikkei 225 advanced 1.5% to 69,744.07, supported by chip-related firms like Kioxia (up 9.2%) and Tokyo Electron (up 0.4%). Hong Kong’s Hang Seng climbed 1.3%, the Shanghai Composite added 0.4%, Taiwan’s Taiex edged 0.1% higher, and India’s Sensex jumped 0.7%. Australia’s S&P/ASX 200 also picked up 1.4%. European markets similarly reported gains, with Germany’s DAX rising 0.7% to 52,643.30, the CAC 40 in Paris gaining 0.3% to 8,497.30, and Britain’s FTSE 100 picking up 0.4% to 10,689.77.

In the commodities and currency markets early Friday, Brent crude, the international oil benchmark, gained 0.6% to $72.26 a barrel, while U.S. benchmark crude was up 0.5% to $69.05 a barrel. The U.S. dollar weakened against the Japanese yen, falling to 160.97 yen from 161.11 yen, while the euro strengthened against the dollar, rising to $1.1450 from $1.1431.