NEW YORK — Wall Street extended its decline Friday as a pullback on stocks associated with the artificial intelligence boom, which drove many of the gains so far this year, morphed into a larger risk-off sentiment.
Semiconductor shares, which led the broader market's move in recent sessions, initially led the selloff, which broadened as the session progressed.
All three major U.S. stock indexes closed lower on the day and posted weekly losses.
The Dow Jones Industrial Average dropped 406.55 points, or 0.77%, to 52,146.42. The S&P 500 tumbled 76.08 points, or 1.01%, to 7,457.69. The Nasdaq Composite fell 361.70 points, or 1.40%, to 25,520.24.
The Philadelphia SE Semiconductor Index logged its steepest weekly loss in more than a year, and tumbled more than 18% so far in July. Even so, the index remains up nearly 65% year-to-date, compared with the S&P 500's nearly 9% gain over the same time frame.
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The SOX closed 20.2% below its June 22 record closing high, confirming the index entered a bear market on that date.
Some investors in the AI space began to position for a slowdown in the almost trillion-dollar spending boom, with some active managers scaling back their exposure, according to a Reuters analysis.
"It's like the market has chip fatigue," said Ryan Detrick, chief market strategist at Carson Group in Omaha, Neb. "Chip stocks are down three of the last four weeks, and it's the same worries, the same concerns; those stocks got way ahead of themselves, and now they're coming back to Earth."
Among the Magnificent Seven group of AI-related megacaps, all but Apple dipped, with Meta and Alphabet suffering the worst of it, down 2.7% and 3.2%, respectively.
Among the major sectors of the S&P 500, communication services and consumer discretionary fell the most, while energy stocks were the sole gainers, benefiting from spiking crude prices amid signs of escalating hostilities in the Iran war.
Second-quarter earnings season is still in its early days, with 49 of the companies in the S&P 500 having reported. Of those, 90% delivered better-than-expected results, according to LSEG.
Netflix tumbled 7.3% after the company's weaker-than-expected earnings forecast.
Uber Technologies dropped 2.1% after the rideshare app announced it would acquire Germany's Delivery Hero in a deal worth nearly $15 billion.
Intuitive Surgical shares slid 14.2% after the medical device maker kept its da Vinci procedure growth forecast unchanged and warned insurance-plan changes may delay patient care.
On the economic front, consumer sentiment increased to a five-month high in July, but single-family housing starts and building permits dipped, and industrial output increased by a meager 0.1%.
