The S&P 500 fell −1.09% on Friday, yet roughly half of its 503 members closed higher.
The losses were concentrated in one corner of the market. The semiconductor selloff stretched to an eighth straight session, led by memory makers and the debt-funded data center operators that have carried the AI trade. Brent crude touched $110 for the first time since May, and September import prices rose faster than expected, keeping a Fed rate hike in play.
Index Performance
Cross-Asset Snapshot
A Selloff Concentrated in Tech
The S&P 500 closed at 7,659.44. The Nasdaq Composite fell −2.15% to 26,140.03 and the Nasdaq 100 lost −2.50%. The Russell 2000 slipped −1.66%, and the Dow held up best at −0.34%, finishing at 52,002.41.
The index and the average stock moved in different directions. Of the 503 S&P 500 members, 249 rose and 254 fell, close to an even split on a day the index lost more than 1%. Energy led the sectors at +2.5%, followed by utilities at +1.3% and consumer staples at +1.1%. Technology fell −3.0% and communication services −1.9%. Those two sectors carry the largest weights in the index, so their losses outweighed gains across most of the market.
The week followed the same pattern. The Nasdaq Composite lost −4.48%, its worst week since June, and the Nasdaq 100 dropped −5.49%. The S&P 500 fell −1.95%, while the Dow gained +0.67%. Across the S&P 500, 350 stocks rose for the week and 153 fell. Technology dropped −7.7%, while consumer staples gained +5.0%, energy +4.9% and health care +3.5%.
Investors are not leaving stocks. They are moving out of one crowded theme and into sectors that had been left behind, and in a market this concentrated, that kind of rotation shows up as an index decline.
Semiconductor Selloff Reaches Eight Sessions
The Philadelphia Semiconductor Index fell −3.8%, its eighth consecutive decline and the longest losing streak in nearly two decades. The iShares Semiconductor ETF (SOXX) lost −4.1% and now sits about 16% below its October 6 close.
Memory stocks took the heaviest losses. Micron fell −5.6%, Seagate −7.5%, and Western Digital and Sandisk −6.9% each.
Memory investors also had news from China to digest. ChangXin Memory Technologies (CXMT), China’s largest DRAM maker, reported preliminary net profit of 131 billion to 132.5 billion yuan, or about $19.6 billion to $19.8 billion, for the first nine months of the year, compared with a loss of 5.3 billion yuan a year earlier, Bloomberg reported. Revenue rose more than eightfold to as much as 270 billion yuan, and the company said it had added capacity and raised output per wafer.
The results show how tight the DRAM market has become. They also show a well-funded competitor adding supply quickly. Late in a memory upcycle, the bigger risk for Micron and its peers is usually not demand but how much new capacity arrives and how fast prices adjust to it.
AMD fell −6.0%, Intel −5.8% and Broadcom −4.5%. Nvidia dropped a smaller −1.4%. Over the week, AI hardware suppliers fell hardest: Lumentum and Hewlett Packard Enterprise lost about 25%, Dell 23%, and Teradyne and Applied Materials about 19%.
The other weak spot was the group of companies that rent out AI computing capacity. CoreWeave fell about 12% and was on track for a weekly decline of nearly 25%, Reuters reported. The company carries about $50 billion of debt, and the cost of insuring that debt against default rose above 1,000 basis points this week, a record. Its peers fell just as hard: Nebius lost −12.2%, Applied Digital −11.5% and IREN −11.2%.
Reuters tied the decline to this week’s inflation data, which raised expectations for further rate hikes and, with them, the cost of financing new data centers. For companies that borrowed heavily to build capacity, the price of capital now matters as much as demand for computing power.
The Hedge Fund Rumor
The sharpest leg of Friday’s selloff came after midday. The VIX, which had spent the morning near 16, jumped as high as 22.31, its highest level in four months, as rumors spread that a large hedge fund was being forced to sell, Seeking Alpha reported. No fund was named on air, and nothing had been confirmed by the close. On social media, the speculation had centered since Thursday on Value Aligned Research Advisors (VARA), an AI-focused fund, according to Bloomingbit. There has been no confirmation that the fund is unwinding.
The rumor fit the price action, which is why it spread. Bloom Energy lost about 21% for the week, and Nebius and CoreWeave each fell more than 11% on Friday alone. Hedge funds were already under strain: global long-short stock pickers lost 2.9% in the week to Thursday and sold AI stocks for six straight sessions, according to Goldman Sachs prime brokerage data cited by Reuters.
What VARA owned is public record, at least as of June 30. Its latest 13F filing with the SEC lists $40.1 billion of U.S.-listed stock and options. Just over half of that, $20.5 billion, is call options, measured at the value of the underlying shares: $4.7 billion on Alphabet, $4.4 billion on Amazon and $4.0 billion on Nvidia. The largest direct stock positions were Bloom Energy and Nebius at about $1.7 billion each, followed by CoreWeave at $1.1 billion.
Grouped by theme, megacap tech and chipmakers account for about 56% of the fund’s stock and call exposure. Neoclouds and bitcoin miners that now host AI servers make up 15%, power and grid names 12.5%, and memory and storage 11%. The theme labels are ours. The filing itself is a snapshot three and a half months old: it shows only long positions in U.S.-listed securities and says nothing about what the fund holds today.
Even so, the list lines up closely with this month’s losers. From the September 30 close through Friday, the 25 largest names in the filing fell −12.1% on a value-weighted basis, against −4.0% for the Nasdaq 100 and a flat S&P 500. The losses sat in the mid-sized AI infrastructure stocks the fund owned outright: IREN −34.0%, Seagate −30.7%, Nebius −29.9% and CoreWeave −29.5%. The largest dollar exposures barely moved, with Amazon up +0.3% for the month and Alphabet down −1.0%.
That pattern is consistent with a forced seller. The same stocks, though, were also at the center of this month’s memory and neocloud selloff, and prices alone can’t separate the two explanations.
Traders have seen this pattern before. In July, the AI-focused fund Situational Awareness was squeezed on both its long infrastructure positions and its short software bets, and its forced sale to Citadel on July 30 marked the low of that month’s chip rout, as we wrote in August. If a forced seller is behind this week’s moves, the July episode suggests the selling can overshoot, and that the rebound tends to start once it ends.
Options traders are positioning for more turbulence either way. The VIX closed at 19.99, up +21.5%, and CNBC reported large purchases of November VIX calls, including a $1.1 million bet that the index will settle above 23 by mid-November.
Oil Touches $110
Brent touched $110 during the session and settled at $109.86, up +$3.94 or +3.7%, its highest close since May 19. November WTI settled at $101.41, up +$3.44 or +3.5%, the highest since September 17. For the week, WTI gained +10.4% and Brent +4.9%.
Several supply risks converged. Attacks on ships around the Strait of Hormuz have increased over the past ten days, and Iran said it was responding to the U.S. blockade of its ports and new sanctions. A ballistic missile aimed at Yanbu, the Red Sea port Saudi Arabia uses to ship oil around Hormuz, was intercepted without damage. Ukraine struck a Russian refinery after Kyiv said it was abandoning a ceasefire covering energy sites, and Russia’s Ryazan refinery halted a crude processing unit, according to Reuters. An International Energy Agency release of more than 20 million barrels of fuel and a U.S. plan to exchange up to 17 million barrels from the Strategic Petroleum Reserve did little to slow the rally.
The gap between the two benchmarks narrowed sharply over the week. Brent’s premium over WTI fell from about $12.90 to $8.45, helped by a large U.S. crude inventory draw tied to hurricane-related production shutdowns. Natural gas fell −3.7%.
Import Prices Bring Inflation Home
September import prices rose +1.1% from August and +8.1% from a year earlier, the largest annual increase since July 2022, according to the Bureau of Labor Statistics. Fuel prices jumped +4.8%. Nonfuel import prices rose +0.7% on the month and +6.0% on the year, the fastest annual pace since April 2022. Export prices rose +2.2%.
Higher oil prices were always going to lift import costs. The increase in nonfuel goods is harder for the Fed to dismiss, because it suggests price pressure is spreading beyond energy.
Industrial production also beat expectations, rising +0.7% in September after a +0.1% gain in August. Manufacturing output rose +0.3% and utilities output jumped +3.5%. Capacity utilization stood at 76.9%.
Warsh Keeps October Open
Fed Chair Kevin Warsh gave no signal for the October decision. Speaking with IMF Managing Director Kristalina Georgieva at the IMF and World Bank meetings in Bangkok, he said “I don’t prejudge meetings,” according to Reuters. He described a surge in AI-related investment that is spreading through the economy and adding to inflation in the near term, and noted that central banks in most countries have been tightening at the same time.
Traders read his silence as a sign that an October hike is unlikely. CME FedWatch odds of a hike at the October 27-28 meeting fell to about 17% from 28%. The probability of a December increase stayed near 89%.
The Treasury market responded more to the tech selloff than to the inflation data. The 10-year yield was little changed near 5.10% on Friday but fell about 15 basis points over the week, and the 30-year yield dropped 16 basis points to 5.44%. Hot CPI, PPI and import price reports would normally push yields higher. This week, demand for safer assets during the tech selloff won out. The dollar index slipped −0.2% to 101.79, and gold rose +0.3% to $4,181.
Around the Market
Apple was the only Magnificent Seven stock to rise, gaining +0.4%. Meta fell −3.7%, Alphabet −2.5%, Tesla −2.1%, Microsoft −1.9%, Amazon −1.9% and Nvidia −1.4%.
Apple has held up through the whole AI selloff. The stock rose +2.0% for the week and touched a record high early Friday, Benzinga reported, after preorders opened for the $1,999 iPhone Duo, Apple’s first foldable phone. Delivery estimates slipped to late January within minutes of the 8 a.m. launch, according to The Next Web; the phone goes on sale October 23. For investors trimming AI exposure, Apple has become the place to stay in big tech without funding the data center build-out. Its growth story rests on selling devices, not on renting out computing power.
Tesla’s decline erased a strong start. The company unveiled its long-delayed Roadster on Thursday evening at a SpaceX test site in McGregor, Texas. In the demonstration, the car used cold-gas thrusters developed with SpaceX to turn in midair, land, and later jump over a truck while twisting through the air. Tesla said production will begin in 2028. The shares rose about 5% in premarket trading on Friday, Reuters reported, but the gain did not survive the broader tech selloff.
Energy and defense stocks moved the other way. Among large caps, Targa Resources (+4.4%), Diamondback Energy (+4.3%) and Kinder Morgan (+4.2%) rose with crude prices. Northrop Grumman (+4.1%), RTX (+3.7%) and Lockheed Martin (+3.7%) led defense. The same risks that lifted oil favored defense contractors: more attacks around Hormuz, Ukraine’s move to resume strikes on Russian energy sites, and, according to analysts quoted by Reuters, rumors of attacks on Saudi energy infrastructure and unverified reports that Iran could be preparing a strike. Lockheed and Northrop each gained more than 8% for the week ahead of earnings from RTX on Tuesday and Lockheed on Thursday.
Earnings season has started unevenly. With 9% of S&P 500 companies reporting, 84% have beaten profit estimates, above the five-year average of 78%, according to FactSet. The size of those beats has been small. Earnings have come in 2.6% above estimates in aggregate, against a five-year average of 7.5%, and the blended growth rate for the quarter slipped to 29.0% from 29.4% a week earlier, mostly because of lower estimates in health care. Travelers rose +1.5% after beating profit estimates, and Truist gained +1.1%.
The Week Ahead
Earnings take over from inflation data next week, and the most important reports come from the companies paying for the AI build-out.
On Tuesday, GE Aerospace, RTX, 3M and General Motors report before the open, followed by Netflix, Intuitive Surgical, Capital One and United Airlines after the close. SpaceX also reports after the bell. September housing starts and building permits are due in the morning.
The busiest day is Wednesday. Meta and Tesla report after the close, along with Texas Instruments, Lam Research and IBM. Meta’s spending guidance will be read as a signal for the whole AI trade, and Lam’s outlook will show whether orders for chipmaking equipment are holding up.
On Thursday, Procter & Gamble, Union Pacific, Lockheed Martin, Blackstone and Comcast report in the morning, along with weekly jobless claims. Western Digital, Newmont and Bloom Energy follow after the close. Friday brings American Express, SLB and the University of Michigan’s consumer sentiment survey.
Fed officials enter their quiet period ahead of the October 27-28 meeting, so there will be no policy guidance from them before the decision.
Bottom Line
Investors sold risk this week, but selectively — they moved money from a crowded AI position into energy, defense, staples and health care, and the index fell because the stocks they sold are the largest in it.
That makes the market healthier than the headline suggests, but not calmer. Oil at $110 and faster increases in nonfuel import prices keep inflation pressure alive, and each rise in rate expectations hits hardest at the most indebted part of the AI supply chain.
Chip stocks have now fallen eight days in a row. Meta’s spending plans on Wednesday will show whether the next rebound has anything behind it.
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