AI Spending Worries Send S&P 500 and Nasdaq into Retreat

The S&P 500 and Nasdaq dropped Thursday, led by declines in Meta and Microsoft amidst concerns over increased AI spending. Despite positive earnings for many S&P firms, investor sentiment soured due to a hawkish Fed outlook and doubts on AI investment returns, overshadowing a potential U.S.-China trade deal.

The S&P 500 and Nasdaq Composite faced declines Thursday, fueled by slumping Meta and Microsoft shares over escalating AI investment costs. This downturn coincided with investor apprehension about a more hawkish Federal Reserve policy. The market's reaction came despite a mixed bag of earnings reports.

Meta's forecast of significantly increased capital expenditures linked to AI spooked investors, while Microsoft's record $35 billion capital expenditure led to a share dip. On the contrary, Alphabet's steady ad and cloud growth bolstered its shares, marking a stark contrast to the tech earnings landscape.

The market pullback came after major indexes hit record highs earlier, buoyed by AI optimism and quarterly earnings. Nonetheless, the potential U.S.-China trade agreement, involving tariff reductions and trade resumption, provided little market relief, suggesting pre-discounted expectations by investors.

(With inputs from agencies.)