Stocks fall as AI fears linger; US yields rise

The major stock indexes dropped on Friday as investors remained cautious about artificial intelligence bets. Meanwhile, the dollar edged up and U.S. Treasury Yields increased. Investors weighed comments from Federal Reserve officials, who had voted against a rate cut by the U.S. central bank this week. They said that they were concerned about inflation and feared lower borrowing costs. Stocks were also weighed down by rising yields. As tech-related concerns lingered, technology fell the most among the major S&P sectors. Oracle, a cloud computing company, warned earlier this week of massive spending and poor forecasts. Broadcom's warning on margins late Thursday added to concerns. Broadcom's shares closed 11.4% lower. Oracle shares fell by 4.5%, adding to the almost 11% drop on Thursday. Nvidia, which is a leader in AI technology was down by 3.3%. Bruce Zaro, managing Director at Granite Wealth Management, Plymouth, Massachusetts, stated that "continued frustration and uncertainty regarding the AI trade and technological trade" pushed the market.

He said: "I thought that this choppiness had ended by now." He added, "We are in a really great?seasonal time. Santa Claus rally is usually held from mid-December to the end of the trading year. Investors are optimistic about future U.S. rate cuts after the Fed reduced interest rates on Wednesday by 25 basis points, in a decision that was 9-3. Policymakers have indicated they will pause further reductions for now. The Fed has expressed concern about the cooling of the labor market and a high inflation rate.

U.S. unemployment claims data on Thursday showed that the number of Americans claiming unemployment benefits increased to the highest level in almost 4-1/2 years. Next Thursday, the Bank of England will likely cut interest rates. The European Central Bank will likely keep rates?steady', but traders now speculate that it may hike rates in the year 2026. After Governor Kazuo ueda's strong signals, the Bank of Japan will likely raise rates. The Dow Jones Industrial Average slid 245.96 points or 0.51% to 48,458.05, while the S&P 500 slid 73.59 or 1.07% to 6,827.41, and the Nasdaq Composite dropped 398.69 or 1.69% to 23,195.17. The MSCI index of global stocks fell 6.39 points or 0.63% to 1,008.88. The pan-European STOXX 600 ended 0.53% down. The yields on the 10-year Treasury note in the United States rose after two consecutive sessions of declines. The yield of the benchmark U.S. Treasury 10-year note increased 5.1 basis point to 4.192%, and was up over 5 basis points for the week. This is the second consecutive weekly increase.

Investors have already begun to price in rate increases for the euro zone. The divergence is due to traders' expectations that U.S. interest rates will fall over the long-term, despite the recent jump in yields. Germany's 30-year bond yield, which is more sensitive to fiscal concerns over the long term, has risen to a new 14-year-high of 3.498%. This represents a 3.5-basis-point increase.

DOLLAR GAINS; POUND FALLS SLIIGHTLY ON UK-DATA The U.S. Dollar drifted higher in relation to major currencies after also falling recently, but it was still on track for its third consecutive weekly drop amid the prospects of interest rate reductions by the Fed next. The pound eased following data showing that the UK economy shrank unexpectedly in the three-month period ending October. The pound fell 0.2% against the dollar, to $1.3375. This is not far off from its seven-week high reached on Thursday. The dollar gained 0.2% against the yen to reach 155.93yen in advance of the BoJ meeting next week, when a rate increase is expected. The BoJ is expected to maintain its pledge to raise interest rates next week, but the rate of increase will depend on the economy's reaction to each hike. The euro was unchanged at $1.1735, after reaching a two-month high Thursday. Meanwhile, the dollar index, which compares the U.S. dollar to six other currencies, increased 0.1% to reach 98.44.

COAL DROPS FROM RECORD HIGH

Copper fell more than 3% after reaching a record high earlier in session. Fears of the AI bubble burst prompted a sell-off of riskier assets.

The benchmark three-month copper price on the London Metal Exchange dropped as much as 3.5 % to $11,451.50, and was trading at $11,537.50 down by 2.8% as of 1700 GMT. The oil prices fell and recorded a weekly drop of 4% as fears over the U.S. seizure and subsequent impact on the Venezuelan oil tanker outweighed the supply glut. U.S. crude dropped 16 cents and settled at $57.44 per barrel, while Brent also fell 16 cents.

(source: Reuters)