A global AI stock sell-off drove equities lower on Friday, with investors questioning the durability of returns from the artificial intelligence investment boom. The S&P 500 fell 1.2%, its worst daily performance since July, while the Nasdaq dropped 2.6%, the biggest decline since June. The Philadelphia semiconductor index tumbled 6.7%, also the sharpest fall since June.
The selling began overnight and spread across major markets. Japanese and South Korean equities fell before recovering part of their losses. Jim Reid of Deutsche Bank described multiple pressures colliding at once, and noted a flight to US Treasuries even as US economic data remained strong.
Oil prices climb on geopolitical fears
Brent crude rose 4.0% to $113.17 per barrel, reaching a five-month high. Geopolitical fears contributed to the increase, adding another source of anxiety for investors already weighing equity valuations.
US government bonds rallied as risk-off sentiment took hold. The yield on the 10-year Treasury fell 16.6 basis points to 4.95%, the largest daily decline since August 2024. The move came despite robust US labour market data: weekly initial jobless claims fell to 194,000 for the week ending October 17, below the 200,000 expectation. The four-week average was the lowest since September 2022.
In Europe, stress linked to France widened the Franco-German 10-year spread by 14.8 basis points, the largest daily move since March 2020.
Memory chipmakers retreat sharply from peaks
The semiconductor sector bore the brunt of the equity sell-off. Shares in memory chipmakers have fallen more than 50% from their peaks. Samsung and SK Hynix now trade at roughly 3-4 times forward earnings. Ipek Ozkardeskaya of Swissquote argued that the memory chip bubble has burst. Even at low forward multiples, the shares have lacked buyers.
Attention now turns to next week’s earnings from Microsoft, Google, Amazon and Sandisk, which could offer fresh signals on the health of AI-related demand.
UK retail sales fall more than expected
In the UK, retail sales volumes declined 0.4% in September, according to official figures released on Friday. Economists had expected a 0.1% decline. Warm autumn weather reduced demand for winter clothing, while online clothing vendors and supermarkets reported lower volumes.
Thomas Pugh of RSM UK said the drop in retail sales and the sharp fall in consumer confidence in October raise the risk that household resilience is coming to an end. He attributed part of the retail decline to warm weather, and also cited lower footfall and cost-of-living pressure. Pugh linked the confidence slump to inflation and borrowing costs, and mentioned nervousness ahead of a likely tax-raising budget.
Retailers reported reduced customer spending and lower footfall during the month. The data add to evidence that UK households remain under pressure as the key shopping period approaches.
