AI spending fears hit the biggest stocks, and the average S&P stock rose
The 10-year yield had its biggest one-day drop since March 2023, and homebuilders rose with it.
Key takeaways
The market's biggest stocks fell on Thursday, and the average stock in the S&P 500 rose.
Invesco S&P 500 Equal Weight ETF, RSP, rose 0.73%, and State Street SPDR S&P 500 ETF, SPY, fell 1.17%. The gap was 1.9 percentage points.
The two funds hold the same 500 companies. SPY weights each one by its market value, so the largest technology stocks drive the fund. RSP gives every company the same weight. When the largest stocks fall and the average stock does not, the two funds move apart.
Invesco QQQ Trust, Series 1, QQQ, fell 2.86%. Reuters reported that the Nasdaq had its steepest daily drop since early June, after a batch of earnings ignited fresh fears about the race to spend on artificial intelligence.
The Dow and the Russell 2000 finished little changed.
Spending fears ran through Meta, chips and optics
Meta Platforms fell 7.0%. The results beat expectations, Reuters reported, and the shares fell anyway. Meta posted its first cash outflow in more than a decade on spending for artificial intelligence, and said it would issue non-voting shares in a two-for-one split to raise more capital for that buildout.
Lam Research fell 11.8%. Joe Mazzola, Charles Schwab's head trading and derivatives strategist, wrote Thursday morning that the chip-equipment maker's results beat expectations but its guidance only met them. He called that a disappointment to investors hoping for signs of even more optimism about spending on chips and artificial intelligence.
Nvidia fell 4.4%, and Advanced Micro Devices fell 8.1%. The funds that hold the group fell with them. Invesco Semiconductors ETF, PSI, fell 9.2%, more than three times the drop in QQQ. iShares Semiconductor ETF, SOXX, fell 6.8%, and VanEck Semiconductor ETF, SMH, fell 6.0%.
The optical names fell harder. Roundhill Investments' Roundhill Photonics & Optics ETF, LYTE, fell 11.7%, and Tema Photonics & Optical ETF, LAZR, fell 10.9%. Lumentum, Coherent and Ciena, among LYTE's largest stock holdings, fell 11.5%, 12.5% and 10.7%. Lumentum is also LAZR's largest holding. StreetInsider said the drop in those stocks stemmed from concerns about whether spending on artificial intelligence infrastructure can be sustained.
Moderna's drop was not a failed trial
Moderna fell 17.6%. YieldMax MRNA Option Income Strategy ETF, MRNY, an options-income fund tied to the shares, fell 15.5%.
Bloomberg reported that the stock dropped after reports suggested a possible leak of melanoma-vaccine data due this weekend. Reuters said the vaccine Moderna is developing with Merck cut the risk of recurrence or death by 42% versus Merck's Keytruda alone, and that analysts called the slide a sell-the-news reaction. The drop, Reuters said, halted a rally that had lifted the stock more than 500% this year.
Long bonds, homebuilders and staples went the other way
The 10-year Treasury yield fell 17 basis points to 4.96%. CNBC said the benchmark had its biggest one-day drop since March 10, 2023, with investors turning to safe havens amid the stock selloff. The 10-year yield, CNBC noted, is used to price mortgages. iShares 20+ Year Treasury Bond ETF, TLT, rose 1.9%.
The 5- and 10-year each fell 17 basis points
Homebuilder funds rose with the yield. iShares U.S. Home Construction ETF, ITB, rose 5.2%, and State Street SPDR S&P Homebuilders ETF, XHB, rose 3.8%. Benzinga tied the rally to the 10-year falling below 5%.
D.R. Horton rose 6.2% and Lennar rose 8.7%. PulteGroup rose 5.9% and NVR rose 3.6% even though both missed quarterly estimates, Bloomberg News reported. That report also said PulteGroup cut its full-year delivery guidance by as many as 2,000 homes.
Staples were the other side of the same session. Procter & Gamble rose 5.6%. Reuters said the company beat estimates and warned that higher raw-material, energy and freight costs would take a bigger bite out of annual profit, and that the gain supported consumer staples. Invesco S&P 500 Equal Weight Consumer Staples ETF, RSPS, rose 3.6%.
Homebuilders rose as photonics and chip funds sold off
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