Dow ends lower as AI selloff drags Nasdaq, defensive stocks gain

• Semiconductor stocks extended losses with Micron down 4%, AMD falling 2%, and the PHLX Semiconductor Index tumbling as investors questioned AI infrastructure investment returns
• Healthcare and defensive sectors outperformed, with Eli Lilly surging 7% to its highest level since 2024 and consumer staples advancing more than 1%
• US inflation rose above 4% in May while the Fed's Kashkari expects one rate increase this year, with traders pricing in a 27% probability of a second hike before year-end

Market Summary: Tech Selloff Drives Rotation to Defensive Sectors

Key Market Movements

U.S. markets closed lower Friday as investors rotated from technology into defensive sectors. The S&P 500 fell 0.27% to 7,337.68, the Nasdaq dropped 0.48% to 25,236.88, and the Dow declined 0.23% (125.78 points) to 51,794.84. For the week, the Dow gained 0.62%, while the S&P 500 and Nasdaq lost over 1% and 4%, respectively.

Semiconductor Pressure

AI-related chipmakers extended declines amid concerns over return on massive AI infrastructure investments. The PHLX Semiconductor Index tumbled, with Micron Technology down 4%, AMD falling 2%, and Intel dropping over 3%. Sentiment weakened further following reports that OpenAI may delay its IPO until next year, partly due to SpaceX's weak post-debut performance and AI stock volatility.

Defensive Sector Outperformance

Healthcare led gains after Eli Lilly surged 7% to its highest level since 2024 following a positive investor event showcasing its development pipeline. Consumer staples advanced over 1%, while financials and utilities gained 0.8% and 0.4%, respectively. Technology stocks fell 1%.

Inflation and Rate Concerns

May inflation data showed U.S. inflation climbed above 4%, driven by higher energy prices from Middle East conflicts. Minneapolis Fed President Neel Kashkari expects one rate increase this year. Traders are pricing in one 25-basis-point hike with a 27% probability of another before year-end.

Global Impact

The tech selloff extended internationally, with SoftBank Group plunging over 12%, while South Korea's Kospi and Kosdaq indexes dropped 5.81% and 4.10%, respectively, as investors reassessed AI valuations.