Key Highlights

● The Nasdaq Composite finished at 26,140.03, its worst week since the week ended June 26.

● A hot September CPI and the largest producer-price gain since March 2022 set the tone.

● Chip stocks posted an eighth straight decline, with all 30 PHLX Semiconductor members lower.

● The equal-weight S&P 500 had its best week relative to technology since 2009.

A run of gains comes to an end

The Nasdaq Composite finished Friday at 26,140.03 after a 572.99-point drop, capping a week that market data showed was its worst since the week ended June 26. Reports described it as the index's first weekly loss in five weeks and the end of a monthlong winning streak.

The decline stood out against the other benchmarks. The S&P 500 posted its biggest weekly drop since June, closing Friday at 7,659.44, while the Dow Jones Industrial Average actually rose for the week, finishing at 52,002.41. Sources differed on the size of the Dow's gain.

Inflation set the tone

The week's troubles began with data. September's consumer price index, released Wednesday, came in hotter than expected, according to a weekly market summary, and producer prices posted their largest monthly gain since March 2022. Odds of an October rate hike spiked after the CPI report before falling sharply again, though futures pricing still points to a hike by December.

Treasury yields swung widely. The 10-year yield had topped 5.30 earlier in October, its highest since 2002. It eased to close the week near 5.1, but higher borrowing costs remained a backdrop for richly valued growth stocks. Fed Chair Kevin Warsh declined to tip his hand in Bangkok on Friday: "I don't prejudge meetings."

AI's financing question

The bigger story was a reassessment of artificial intelligence. Market reports said investors moved from asking what AI can do to asking how it will be financed, and that the rotation erased more than $1 trillion from semiconductor and AI-related stocks over the week.

CoreWeave (NASDAQ:CRWV) captured the anxiety. The AI cloud provider plunged to $61.39 on Friday and fell sharply for the week, as attention focused on debt that reports put at more than $50 billion. The cost to insure CoreWeave's debt hit a record. Nebius Group (NASDAQ:NBIS) and Applied Digital (NASDAQ:APLD) also plunged on Friday.

Chips on a long losing streak

Semiconductors were a constant drag. Market data indicated that chip stocks posted an eighth straight decline on Friday, though sources disagreed on how unusual the streak was historically. All 30 members of the PHLX Semiconductor Index fell on Friday.

Memory makers fared especially badly over the week on concerns about Chinese competitor CXMT's DRAM progress. Sizable weekly pullbacks were seen at Micron Technology (NASDAQ:MU) and Sandisk (NASDAQ:SNDK). Advanced Micro Devices (NASDAQ:AMD), Intel (NASDAQ:INTC) and Broadcom (NASDAQ:AVGO) all fell on Friday.

Software was not spared. Palantir Technologies (NASDAQ:PLTR) tumbled into correction territory, and Fortinet (NASDAQ:FTNT) and Datadog (NASDAQ:DDOG) slid. Meta Platforms (NASDAQ:META) fell amid concern about debt-funded AI spending.

Rotation, not retreat

Money did not simply leave the market. Energy, utilities, consumer staples, health care and financials attracted buyers, and the equal-weight S&P 500 had its best week relative to technology since 2009. One senior market analyst said "US and Asian equities have borne the brunt of the sell-off."

Week Ahead Tests the AI Thesis

Housing starts are due Oct 20, PMIs and consumer sentiment Oct 23, and the Fed's decision Oct 28.

The coming week tests the AI thesis directly. The same analyst said "upcoming Big Tech earnings will still need to demonstrate that the enormous investment in AI is translating." Netflix (NASDAQ:NFLX) reports Tuesday, Oct 20; Meta and Tesla (NASDAQ:TSLA), Lam Research (NASDAQ:LRCX) and Texas Instruments (NASDAQ:TXN) follow Wednesday; and Western Digital (NASDAQ:WDC) reports Thursday.