US stocks fell last week despite strong economic data, with AI worries hitting tech hardest, according to Northwestern Mutual’s Brent Schutte. The Nasdaq 100 lost 4.91%, and the S&P 500 fell 2.68%, Schutte, chief investment officer at Northwestern Mutual Wealth Management Company, noted.
Thursday was the worst day. The Nasdaq 100 dropped 6.4%, wiping a record $2.3tn off market value in one session. On Wednesday, AI-related names fell despite a post-election relief rally, and Friday brought only a partial recovery.
The data was firm. ISM Manufacturing rose to 55.5 from 54.5, with 50 as the line between growth and contraction, and payrolls rose 165,000 against 70,000 expected. Unemployment slipped to 4.1% from 4.2%. The ISM prices index, at 73.2, was higher in only 7% of readings since 1997.
The AI trade took the damage. The SOX semiconductor index fell 12.15% on the week and is 35.84% below its 22nd of June high; Goldman Sachs’s AI stock basket fell 11.36%. The Nasdaq 100 sits 13.56% below its October high, a correction. Off their all-time highs, NVIDIA is down 21.98%, AMD 30.85%, Broadcom 39.01% and Micron 43.14%.
Schutte pointed to politics and costs. Democrats took the House and Senate in last week’s midterm elections, which he said raises the prospect of slower data-centre construction; voters backed restrictions in 40 of 41 local ballot measures.
Apple has reportedly cut the daily AI spending cap for some engineers from $ 300 to $ 200, and Microsoft, Tesla, Uber and Meta also cap usage. Last week Apple issued $7.5bn of debt, Microsoft $25bn, Oracle $10bn and Meta $15bn.
Bond yields fell last week. Odds of a December Fed rate hike were 81.8% on Wednesday, 68.4% on Thursday and 77% on Friday, from 90% on the 19th of October. The Fed meets on the 9th of December. Schutte warned that raising rates risks more pressure on the AI trade and the economy, given the US stock market is 2.15 times the size of the economy.
Breadth held better. The equal-weight S&P 500 is only 3.2% off its recent high, and seven of 11 sectors have been positive since the October high. Schutte called diversification the antidote, adding that nobody knows whether AI is a bubble, but some air has already come out.
He noted that after the 2000 peak, the Nasdaq and S&P tech sector took 14.5 and 16.8 years, respectively, to reach new highs.