US equity markets slid sharply on Wednesday, with the S&P 500 down 1.06%, the Dow Jones Industrial Average down 0.12%, and the Nasdaq 100 falling 2.23%. The selloff was led by a broad drop in chip and AI infrastructure stocks, as investors weighed concerns that blockbuster gains tied to artificial intelligence may be outpacing what elevated valuations can justify.
Index futures pointed to further weakness into the session, with September E-mini S&P futures down 0.95% and September E-mini Nasdaq futures down 2.12%. Risk assets also weakened globally, while demand for Treasuries increased as investors rotated toward safety.
Key takeaways
- Price move: The S&P 500 fell 1.06% and the Nasdaq 100 dropped 2.23%, with technology—especially semiconductors—underperforming.
- Catalyst: A continued pullback in chipmakers and AI infrastructure stocks, intensified by fresh concerns about valuation after new AI competition headlines.
- Macro & rates: Treasuries gained as equities weakened, though gains were constrained by firm housing data and higher oil.
- Implication: Investors appear to be repricing the pace of AI-related earnings momentum, increasing sensitivity to valuation and guidance.
- Geopolitics: Oil jumped on renewed US-Iran strikes and counteractions, adding to inflation-related caution for rates.
What drove the move
Chip and AI-related stocks extended their decline for a second day, dragging major indexes lower. The selloff was framed around concerns that AI-fueled rallies may have moved too far ahead of fundamentals for companies trading at elevated multiples.
The pressure on AI sentiment intensified after reporting out of Asia described fresh competition in large language models. According to the article, China’s Moonshot launched its Kimi K3 AI model and said it rivals top offerings from OpenAI and Anthropic, which added to investor anxiety that the AI spending cycle could be even more contested and expensive than previously priced.
Investor positioning also contributed to the risk-off tone. According to EPFR Global Market Intelligence, executives sold $77.6 billion of stock in the first half of the year, the second-highest amount in more than 20 years, a factor that can weigh on market sentiment when combined with stretched valuations.
Market reaction across rates and commodities
Safe-haven demand supported US government bonds as equities dropped. September 10-year Treasuries were up by 8 ticks, and the 10-year yield was down 2.4 basis points to 4.529%, after trading toward a one-week high in price. The article noted that Treasury gains were capped somewhat by two opposing inflation signals: stronger-than-expected housing starts and higher oil prices.
Oil rose more than 2%, with WTI up after the US launched fresh strikes against Iran for a sixth consecutive night, targeting coastal surveillance and air defense sites, military logistics infrastructure, and maritime assets. Iran responded by attacking US bases in Kuwait, Jordan, and Bahrain, including reporting that a desalination and electricity plant in Kuwait was hit. The article further cited the Wall Street Journal on US strikes against bridges used for supply routes to an Iranian port city and naval base supporting operations in the Strait of Hormuz. According to RBC Capital Markets LLC, a seven-day moving average of oil flows through the Strait of Hormuz fell to 3.9 million barrels per day from 8.5 million before the ceasefire collapse.
Outside the US, European bond markets were also firmer. The article said the 10-year German bund yield was down 1.0 basis point to 3.124% and the 10-year UK gilt yield fell 0.7 basis point to 4.959%. In swaps pricing, the market discounted a 7% chance of a 25 basis point ECB rate hike at the next policy meeting on July 23.
US data and company-specific moves
Economic releases were mixed. The article reported that June housing starts rose 19.0% month over month to 1.427 million, exceeding expectations of 1.310 million, while June building permits—which the report described as a proxy for future construction—fell 3.0% to 1.367 million, below expectations of 1.403 million. US June manufacturing production was unchanged month over month, weaker than expectations for a 0.1% increase. The article also said the June import price index excluding petroleum rose 0.5% month over month, above expectations of 0.4%.
Within equities, semiconductors and mega-cap technology were prominent sources of weakness. The iShares Semiconductor ETF fell to a 1.75-month low and was down more than 3%. Several chip-related stocks dropped by at least mid-single digits in the report, including Applied Materials, AMD, ARM, Intel, and Lam Research (each down more than 6%), along with Western Digital and KLA (down more than 5%).
The “Magnificent Seven” also weighed on indices. Nvidia was down more than 4% to lead losers in the Dow, while Alphabet, Meta Platforms, and Tesla were down more than 3%. Apple was a smaller decliner at down 0.04%, and Amazon and Microsoft were down more than 1%.
Notable single-name moves included Netflix, down more than 10% after issuing full-year revenue guidance with a midpoint below consensus, and Intuitive Surgical, down more than 9% after maintaining its full-year forecast despite reporting better-than-expected second-quarter results. Travelers shares rose more than 7% after reporting second-quarter net premiums written above consensus, while Jazz Pharmaceuticals gained after Canaccord Genuity initiated coverage with a buy rating and a price target.
Bigger picture for investors
The report emphasized that markets are discounting a 10% chance of a 25 basis point rate hike at the next FOMC meeting on July 28–29. That backdrop matters as investors weigh whether recent data supports higher rates via inflation expectations, or whether slowing risk appetite and safe-haven demand will keep yields contained.
While the selloff dominated the tape, the article also pointed to a potential counterweight from earnings expectations. According to Bloomberg Intelligence, second-quarter earnings are expected to rise 23%, close to first-quarter growth of 30%, and the report said AI spending is projected to drive much of the S&P 500’s earnings-per-share growth. Even so, investors appear focused on whether AI-related earnings can justify current valuations as competition intensifies.
Looking ahead, investors will likely watch how the market digests the earnings pipeline that began this week and whether guidance from large AI beneficiaries supports—or challenges—expectations for second-half growth. Additional attention will also fall on upcoming macro releases and Fed-related communication as oil volatility and mixed economic data continue to influence rate expectations.
