The market’s AI-fueled euphoria hit a speed bump on Thursday, as chipmaker Micron’s lukewarm outlook put a damper on tech stocks. Meanwhile, investors grappled with fresh economic data ahead of a crucial inflation reading that could sway the Fed’s next move.
The S&P 500 hugged the flatline after Wednesday’s close, which saw the index flirting with new all-time highs. The Dow Jones Industrial Average eked out a 0.2% gain, while the tech-heavy Nasdaq Composite wavered between gains and losses.
Micron’s sales forecast for the current quarter met Wall Street’s expectations, but failed to ignite the fireworks investors have come to expect from AI-linked companies. The memory maker’s shares plunged over 6% in early trading, dragging down other chip stocks in its wake. Nvidia (NVDA), the poster child of the AI boom, shed more than 2%, rekindling fears of a broader tech sell-off reminiscent of last week’s tumble.
“The market’s been riding high on AI dreams, but Micron just gave us a reality check,” said Mike Thompson, chief market strategist at Vespula Capital. “This could be the pin that pops the tech bubble if other big players don’t deliver knockout earnings in the coming weeks.”
Investors found themselves in a precarious position as they digested a fresh batch of economic data. Initial weekly jobless claims came in at 233,000, slightly below the expected 235,000. While this suggests a resilient labor market, recurring jobless claims hit their highest level since late 2021, hinting at potential cracks in the employment picture.
“We’re seeing a bit of a Jekyll and Hyde situation in the job market,” explained Sarah Wexler, senior economist at Wells Fargo. “On one hand, layoffs remain low. But on the other, it’s taking longer for the unemployed to find work. This could be a sign that the Fed’s rate hikes are finally starting to bite.”
Adding to the economic puzzle, the Bureau of Economic Development’s third estimate of Q1 GDP showed a 1.4% annual growth rate, a tick higher than the previous 1.3% reading. While any upward revision is welcome news, it still marks the slowest growth since 2022.
All eyes are now turned to Friday’s Personal Consumption Expenditures (PCE) inflation print – the Fed’s preferred measure of price pressures. With the central bank hinting at potential rate cuts later this year, a hotter-than-expected reading could throw a wrench in those plans.
“The PCE data is the 800-pound gorilla in the room,” said Tom Lee, head of research at Fundstrat Global Advisors. “If inflation comes in too hot, it could force the Fed to stay hawkish longer than the market’s been pricing in. That would be bad news for stocks, especially those high-flying tech names.”
On the corporate front, Levi Strauss (LEVI) shares took a beating, plunging over 15% following a disappointing Q2 revenue miss. The jeans maker’s struggles raise concerns about consumer resilience in the face of persistent inflation and economic uncertainty.
“Levi’s stumble is a red flag for the retail sector,” warned Brian Sozzi, Yahoo Finance’s Executive Editor. “If consumers are pulling back on denim, what else are they cutting from their budgets?”
After the closing bell, all eyes will be on Nike’s (NKE) quarterly results for further clues on consumer spending habits.
Traders are also bracing for what could be a volatile end to the quarter. With the July 4th holiday around the corner, liquidity could dry up, potentially exacerbating market swings.
“We’re entering a critical juncture,” cautioned Michael Antonelli, market strategist at Baird. “The AI narrative has carried us this far, but now we need to see real economic improvement to justify these lofty valuations. Otherwise, we could be in for a long, hot summer of selling.”
For now, the market remains in a precarious balance. Bulls are clinging to hopes of a soft landing and Fed rate cuts, while bears point to persistent inflation risks and lofty valuations.
