The Dow Jones Industrial Average and the broader US stock market closed lower on Friday as investors continued rotating out of technology and semiconductor stocks while shifting into more defensive sectors such as healthcare, consumer staples, and utilities.

The S&P 500 slipped 0.27% to close at 7,337.68, while the Nasdaq Composite fell 0.48% to 25,236.88.

The Dow Jones Industrial Average lost 125.78 points, or 0.23%, to end at 51,794.84.

Despite Friday’s decline, the Dow posted a weekly gain of about 0.62%. The S&P 500 had a loss of more than 1% for the week, while the Nasdaq fell by 4%.

Chip stocks extend decline amid AI spending concerns

Semiconductor stocks remained under pressure as investors questioned whether the enormous investments being made in artificial intelligence infrastructure will generate returns quickly enough.

The PHLX Semiconductor Index tumbled, extending recent volatility across AI-related chipmakers that have powered much of Wall Street’s gains in recent years.

Micron Technology fell 4%, Advanced Micro Devices declined 2%, and Intel dropped more than 3%.

Sentiment was also hurt by a New York Times report that OpenAI is considering delaying its initial public offering until next year, partly due to SpaceX’s weak post-debut performance and broader volatility across AI-related stocks.

SpaceX stock closed 0.15% higher, after surging earlier on improved sentiment due to inclusion to the Russell 1000 index.

Defensive sectors outperform as healthcare rallies

As technology shares weakened, investors rotated into more defensive areas of the market.

The S&P 500 information technology sector fell 1%, while healthcare stocks continued to attract buying interest after outperforming in the previous session.

Shares of Eli Lilly surged 7%, Johnson & Johnson gained more than 3%, and AbbVie rose more than 1%.

Consumer staples advanced more than 1%, while financials and utilities gained 0.8% and 0.4%, respectively.

Moderna also rallied sharply, climbing to its highest level since 2024 after hosting an investor event that showcased its development pipeline.

Inflation concerns and global weakness shape sentiment

Fresh inflation concerns also influenced market sentiment.

Data released on Thursday showed US inflation climbed above 4% in May, driven by higher energy prices linked to the conflict in the Middle East.

Although oil prices retreated as geopolitical tensions eased, analysts said Apple’s recent price increases highlighted lingering inflation pressures.

Investors also weighed better-than-expected consumer sentiment data and an improved inflation outlook, even as Minneapolis Federal Reserve President Neel Kashkari said he expects one interest rate increase this year because of rising inflation pressures.

Interest-rate concerns persisted, with traders pricing in one 25-basis-point hike and a nearly 27% probability of another increase before year-end, according to LSEG data.

The technology selloff also spread globally.

SoftBank Group plunged more than 12%, while South Korea’s Kospi and Kosdaq indexes dropped 5.81% and 4.10%, respectively, as investors reassessed the outlook for AI-related spending and technology valuations.

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The artificial intelligence boom has long been pitched as a transformative force that would boost productivity and eventually lower costs across the economy.

But this week, investors were confronted with a less discussed consequence of the AI race: higher prices.

Apple and Microsoft both announced product price increases on Thursday, citing soaring costs for memory and storage technologies that have become increasingly scarce as technology giants pour hundreds of billions of dollars into building AI infrastructure.

The moves reinforced growing concerns that, at least in the short term, AI may prove inflationary rather than disinflationary.

“Apple and Microsoft’s price rises have struck at the market’s fear of inflation, raising worries that, far from being deflationary, the AI boom might be inflationary, particularly for the hard-pressed consumer, hurting rather than aiding economic growth,” Chris Beauchamp, chief market analyst at IG, said.

Memory shortages hit consumer electronics

Apple raised prices on several MacBook and iPad models by between $100 and $300, though it left iPhone prices unchanged.

“The rapid expansion of AI data centers has created an extraordinary surge in demand for memory and storage. We have never seen a component price increase this much, this quickly,” Apple said in a statement.

The company added that it had “reached a point where we need to begin raising prices on a number of products,” while indicating that additional increases remain possible.

The market reaction was swift. Apple shares tumbled 6%, their worst single-day decline in more than a year.

Microsoft announced similar measures.

The software giant said prices of Xbox consoles would rise globally, with increases of $100 for 512-gigabyte models and $150 for one-terabyte versions effective Aug. 1.

The company also said it would discontinue its two-terabyte Xbox model.

The moves added to a growing list of technology manufacturers raising prices this year.

Dell, HP, Lenovo and Asus have all flagged higher prices, while Samsung increased prices on two variants of its Galaxy S26 smartphones in the United States by $100.

Shortage of memory chips and ‘chipflation’ fears

The price increases stem from an unprecedented shortage of memory chips.

Memory and storage components have become critical ingredients in the AI boom as hyperscalers race to build increasingly powerful data centres.

Suppliers have shifted production toward high-bandwidth memory chips used in AI servers, leaving consumer electronics manufacturers scrambling for supplies.

“The four largest US technology companies are forecast to spend $725 billion on data centers and AI equipment in 2026 alone. That level of demand for memory chips has created a shortage the supply chain cannot keep pace with,” said James Bull at RSM UK.

Bull said it had become increasingly evident that the costs of building the AI economy were being passed on to consumers and potentially to the broader inflation outlook.

Morgan Stanley analysts warned earlier this month that soaring memory prices could trigger “chipflation” across industries.

The brokerage said memory chip prices had risen six-fold over the past year.

“What began as an AI infrastructure bottleneck is now spreading into hardware margins, device affordability, cloud costs, inflation and policy,” the bank wrote in a note.

Areas where AI infrastructure is creating new inflation pressures

Some economists believe the inflationary impact of AI extends beyond semiconductors.

According to an April note by JPMorgan Asset Management’s Chief Global Strategist David Kelly, the enormous spending wave tied to AI development is likely to be inflationary in the near term rather than deflationary because demand is hitting the economy well before productivity gains materialise.

Kelly acknowledged that rising memory-chip prices are one channel through which AI investment could feed into higher prices, but said they do not yet represent a major source of economy-wide inflation.

Instead, he pointed to other emerging pressures. One of the clearest examples is electricity demand.

“One aspect of this demand is spending on electricity. After more than a decade of no growth, US electricity production rose by 2.5% in 2024, 2.4% in 2025 and was up by 3.0% year-over-year in March of 2026,” he said, noting that much of the increase was driven by data centre consumption and the growing use of AI models for training and inference.

Kelly said this likely contributed to a 4.6% year-over-year increase in consumer electricity prices in March.

However, because electricity carries a weight of only about 2.5% in the consumer price index basket, higher power costs accounted for just 0.1 percentage point of March’s 3.3% annual rise in headline inflation.

The construction boom linked to AI data centres is also creating labour pressures.

Construction workers saw wages rise 4.3% year-over-year in March, outpacing the 3.5% increase recorded across the broader private sector.

However, Kelly said this acceleration was probably driven more by labour shortages than by AI itself.

The total number of US construction workers increased only 0.7% over the past year, partly reflecting a sharp reversal in immigration trends in a sector that has historically relied heavily on immigrant labour.

AI productivity gains could eventually ease inflation, economists say

Kelly, however, said it was unlikely that most corporations had so far realised significant cost savings from deploying the latest AI models and even less likely that any savings had been passed on to consumers.

“There is a small but growing number of layoff announcements explicitly attributed to AI and there are some signs of diminished hiring of entry-level workers in the most AI-exposed industries,” he said.

He added that fears that AI will “take your job” could also be making workers more cautious, with economywide year-over-year wage growth falling to an almost five-year low in March.

However, more recent data from global outplacement firm Challenger, Gray & Christmas suggests AI’s impact on employment is becoming more pronounced, though.

US-based employers announced 97,006 job cuts in May, with artificial intelligence accounting for roughly 40% of all layoffs announced during the month.

It marked the third consecutive month in which AI was the leading reason cited for job reductions.

“Despite this labor market ‘scare’ effect, however, it does appear that AI is, on balance, adding slightly to inflation in the short run, although it will be far from the most important inflation driver. If this continues to be the case, over say, the next two years, then this alone would negate the idea that a disinflationary impulse from AI supports the need for short-term interest rate cuts,” Kelly said.

He expects AI to become a powerful disinflationary force over the longer term as productivity gains begin to emerge and spread across the economy.

Goldman Sachs has echoed that assessment, saying AI is currently adding to inflationary pressures even though it should ultimately lower production costs and lift economic growth.

“We expect artificial intelligence to deliver large productivity gains over the next several years, boosting the economy’s potential growth rate and putting downward pressure on production costs. So far, however, AI is boosting US inflation,” Goldman Sachs economists wrote last month.

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South Korean stocks have soared in the past few months, with the KOSPI Index doubling this year, helped by the strong performance of Samsung and SK Hynix. It peaked at 9,388 this month and then pulled back to the current 8,410. Still, there is a risk that the index will retreat sharply once the ongoing AI-fueled growth ends.

Top reasons why the Kospi Index is at risk

The blue-chip Kospi Composite Index has been in a strong upward trend this year, helped by the robust gains by companies like Samsung and SK Hynix, which are top leaders in the memory industry. 

The two companies have surged because of the ongoing AI boom that has pushed memory prices much higher. As a result, their market capitalization has crossed the $1 trillion milestone this year.

The recent Micron earnings showed that the memory industry was doing well this year. Its revenue more than tripled, while its gross margin jumped to over 80%. The management expects that the revenue will soar to over $50 billion this quarter.

These numbers mean that Samsung and SK Hynix will experience a similar growth in the near term. This explains why the latter is now planning to raise $30 billion by listing in the United States. 

Still, the main risk for the Kospi Composite Index is that these two companies account for over 50%. As such, it will continue doing well as long as the memory boom is accelerating. On the other hand, signs that the memory boom is ending will lead to a strong reversal. 

There is also a risk that the Kospi Index surge is showing bubble-like behaviors as many South Korean retail investors pile in. Indeed, most people in Seoul and other cities are constantly talking about the booming stock market. 

That has led to the Fear of Missing Out (FOMO), with many traders taking huge loans to take part in the boom. Data shows that retail investors hit a borrowing limit earlier this month, with many of them borrowing over $11 billion to pump the market.

On the other hand, foreign investors have started selling their South Korean stocks. They sold over 129 million shares recently, a sign that they expect the rally to halt. 

Another potential macro risk is that the US and Iran have intensified their attacks at the Strait of Hormuz, risking a resumption of the war. Such a move will lead to higher crude oil prices, which will affect South Korea, a country that depends on energy imports.

Kospi Composite Index has formed a bearish divergence

Kospi Index chart | Source: TradingView

Technicals are sending bearish signals, with the MACD indicator forming a bearish divergence. This pattern happens when the indicator is forming a series of lower lows and lower highs when an asset is in an uptrend.

The same is happening with the Relative Strength Index (RSI), which has slowly dropped from the overbought level of 83 to the current 52. 

KOSPI has also formed a double-top-like pattern. Therefore, there is a risk that it will resume the downward trend in the coming weeks, potentially to the key support at 7,000.

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The S&P 500 Index has come under pressure in the past few days, moving from the year-to-date high of $7,620 to the current $7,354. This retreat continued amid the rising jitters that the AI boom is ending. This article highlights some of the top catalysts for the index and its ETFs like VOO and SPY. 

S&P 500 Index to react to US nonfarm payrolls data

A key catalyst for the S&P 500 Index will come out on Friday, when the US publishes the latest non-farm payrolls (NFP) data that will shed more color on the state of the US economy. 

Economists predict the data to show that the economy added over 114k jobs in June, much lower than the 172k it added in May this year. Based on the last jobs numbers, there is a possibility that the job additions will be much higher than estimates. For example, in the last report, the 172k figure was higher than the expected 85k.

Economists expect the unemployment rate to remain at 4.3%, while the labor force participation rate is projected to hold steady at 61.8%. A stronger-than-expected report would increase the likelihood that the Federal Reserve either raises interest rates later this year or keeps them higher for longer. In a statement on Friday, Raphael Bostic, a senior Fed official, suggested that the central bank could still raise rates.

The odds of a rate hike have jumped as inflation has remained at an elevated level. A report released last week showed that the headline consumer inflation jumped to 4.2% last month. It has remained above the 2% target in the last five years.

Nike, Constellation Brands, General Mills, AeroVironment earnings

The S&P 500 Index will also react to some notable earnings this week. However, unlike last week, when it reacted to the Micron earnings report, this week’s earnings will have a minimal impact because they are not in the booming AI industry.

The most important results will come from Nike, the top apparel company. These results come at a time when the company is going through a major turnaround strategy, with investors questioning the slow pace of its turnaround strategy. 

Constellation Brands will also publish its financial results this week, shedding more color on the business at a time when beer consumption is falling. It owns popular brands like Modelo and Corona.

AeroVironment, a small player in the defense industry, is also releasing its numbers on Monday, while General Mills will release on Wednesday.

US-Iran tensions

The other key catalyst for the S&P 500 Index and its ETFs like VOO and SPY is the upcoming US-Iran tensions. Iran restarted this crisis on Friday when it launched strikes against a ship that disobeyed its orders. It also launched strikes against another ship on Saturday.

The US responded to this crisis by launching strikes against key Iranian targets. On the other hand, Iran responded by striking US military installations in Bahrain. As a result, there is a likelihood that the crisis will escalate, which will push the stock market lower.

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