Has the AI Rally Ended? Semiconductor Plunge and Fed Remarks Shake U.S. Markets

On the 16th in local trading hours, New York markets retreated across the board as leading AI stocks plunged. The S&P 500 fell 0.5%, the Dow dipped 0.2%, and the Nasdaq slid 1.5%. Despite the index weakness, most individual stocks gained, indicating that selling was concentrated in certain overvalued large-cap tech and semiconductor names.

Economic data clouded the market’s direction. June retail sales slowed to a 0.2% month-on-month gain, while initial jobless claims came in lower than expected, blending signs of softening consumption with resilient employment. Treasury yields ticked up, adding valuation pressure to growth stocks, and despite recent easing in inflation, Dallas Fed President Logan’s comments on “slightly higher rates” further dampened investor sentiment.

Semiconductor stocks failed to capitalize on an earnings boost even though TSMC reported quarterly net income up 77% year-on-year, as its American depositary receipts declined. Amid concerns over increased supply and investment burdens, semiconductor ETFs plunged over 4%, spreading selling across AI beneficiaries such as Nvidia. After hours, Netflix shares fell about 7% despite a slight earnings beat, as revenue and guidance disappointed.

Tensions between the U.S. and Iran in the Middle East drove Brent crude briefly above $86 a barrel before settling back to the $84 range, helping the energy sector rise nearly 1% as a defensive play. The volatility index jumped over 6%, reflecting heightened uncertainty, and markets are now watching whether upcoming consumer and employment data and Fed remarks will trigger further adjustments or if the AI and semiconductor pullback will be viewed as a buying opportunity in rotation.