Blue chips surge while AI related stocks stumble
The Dow Jones Industrial Average jumped 520 points Thursday, reaching a fresh all time high as investors shifted money from tech heavy growth names into companies poised to benefit from a stronger U.S. economic outlook. The index rose 1.1%, supported by gains in Visa after an upgrade from Bank of America. Meanwhile, the S&P 500 slipped 0.3%, and the Nasdaq Composite fell 0.9%.
The rotation was triggered by disappointing earnings from Oracle, whose shares plunged 14% after revenue missed expectations and the company raised its spending forecast. The update heightened concerns about rising costs and leverage in cloud and AI infrastructure, prompting investors to reassess the timeline for returns on large scale AI investments.
AI stocks slide as investors reconsider growth expectations
Oracle’s results added further pressure to major AI linked names. Nvidia, Broadcom and AMD each declined around 3%, while CoreWeave dropped 5%. Analysts noted that the selloff reflects growing unease over whether the trillions committed to AI infrastructure will generate returns quickly enough to justify current valuations.
“Oracle is acting like the canary in the coal mine,” said Steve Sosnick, chief strategist at Interactive Brokers. He added that while excitement around AI remains high, markets are struggling to price the risks and timelines associated with these capital intensive projects.
Cyclical stocks benefited from the shift, with Home Depot among the names moving higher as investors looked toward companies tied more closely to real economic expansion and consumer spending.
Fed’s third rate cut adds momentum, but divides committee
The market action follows the Federal Reserve’s third interest rate cut of the year, a widely expected quarter point move that lowered the benchmark rate to a 3.5%–3.75% range. The cut came alongside signals of a slower pace of easing ahead, with several committee members dissenting on the decision.
Fed Chair Jerome Powell said policymakers are “well positioned to wait and see how the economy evolves,” noting that President Trump’s tariffs have contributed to upward pressure on prices. Despite mixed views inside the Fed, all three major indexes ended Wednesday higher, with the S&P 500 finishing just shy of a record.
Small caps shine as borrowing conditions ease
The Russell 2000 index of small capitalization stocks reached a record close, underscoring how lower interest rates disproportionately benefit smaller firms whose borrowing costs are more sensitive to market rates. Investors also see small caps as better positioned to capture gains from domestic economic strength as financial conditions loosen.
While Thursday’s tech pullback weighed on broader sentiment, the rotation into financials, industrials and consumer related names suggests confidence in continued economic expansion, even as markets reassess the immediate payoff of AI driven spending.
