Markets Pull Back as AI Stocks Weigh on Sentiment

Stocks retreated Friday as investors took profits in high-flying AI names following disappointing updates from Oracle and Broadcom. The Nasdaq led the decline, with the S&P 500 and Dow also pulling back from record territory. Longer-dated Treasury yields climbed as Fed officials pushed back on expectations for a sustained dovish pivot, injecting caution into risk assets. Despite the day's weakness, many strategists remain constructive on equities heading into 2026, though leadership may rotate away from the year’s biggest winners.

Key Headlines & Market Movers:

• AI Leaders Trigger a Tech Selloff: Broadcom fell 11% after issuing a tepid sales forecast, amplifying concerns sparked by Oracle’s weak results and rising capital costs. The AI infrastructure trade—spanning chipmakers, cloud firms, and data center plays—saw broad declines. Nvidia, Micron, and Oracle were each down multiple percentage points, deepening the unwind in what has been one of 2025’s most dominant trades. Strategists see this as a correction, not collapse, though valuation pressure is unlikely to ease near-term.
• Fed Messaging Muddies Rate Outlook: The week’s Fed rate cut failed to sustain bullish momentum as officials voiced concerns about sticky inflation. Cleveland Fed’s Beth Hammack and Kansas City Fed’s Jeff Schmid signaled discomfort with further easing, suggesting policy may remain tighter than markets hope. Bond yields rose, with the 30-year hitting a three-month high. Mixed Fed signals are keeping investors cautious heading into next week’s key data releases.
• Rotation and Diversification Themes Build: With tech’s leadership under scrutiny, market participants are increasingly eyeing diversification across sectors and geographies. Goldman Sachs and others see upside in emerging markets and underperforming regions like Japan and Korea. The notion of a “price worth paying” for diversification is gaining traction, especially as stretched valuations in mega-cap tech draw more skepticism.
• Lululemon Surges on CEO News and Outlook Boost: In contrast to the tech-driven slump, Lululemon shares jumped 12% after raising its full-year outlook and announcing a CEO transition. The move came after a tough year for the retailer, and investors welcomed the leadership change as a potential catalyst for renewed growth. It was one of the few bright spots in a red day across broader markets.

S&P 500 Sector Performance

Looking Ahead

Markets appear to be in a consolidation phase following a strong run and dovish Fed signals. With AI stocks correcting and economic data limited, attention will shift to next Tuesday’s jobs report and further Fed commentary. While the long-term outlook for equities remains broadly constructive, especially into 2026, near-term volatility may persist as leadership rotates and investors digest mixed signals from both corporate and policy fronts.

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