Wall Street closed sharply lower on Friday, pulled down by tech and discretionary stocks. Artificial intelligence (AI)-driven chip selloff intensified, prompting risk-off sentiment among investors amid geopolitical tensions. All of the three benchmark indexes firmly ended in the red.

How Did the Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 0.8%, or 406.55 points, to close at 52,146.42. Twenty-three components of the 30-stock index ended in the negative territory, while seven ended in the positive.

The tech-heavy Nasdaq Composite slid 361.7 points, or 1.4%, to close at 25,520.24.

The S&P 500 lost 76.08 points, or 1%, to close at 7,457.69. Ten of the 11 broad sectors of the benchmark index closed in the red. The Communication Services Select Sector SPDR (XLC), the Consumer Discretionary Select Sector SPDR (XLY) and the Technology Select Sector SPDR (XLK) declined 2.4%, 1.6% and 1.1%, respectively, while the Energy Select Sector SPDR (XLE) advanced 1.2%.

The fear gauge CBOE Volatility Index (VIX) increased 12.2% to 18.77. A total of 17.55 billion shares were traded on Friday, lower than the last 20-session average of 20.87 billion. Decliners outnumbered advancers by a 1.94-to-1 ratio on the NYSE and by a 1.76-to-1 ratio on the Nasdaq.

Wall Street Retreat Deepens as AI Pullback Fuels Broad Market Selloff

Wall Street extended its losses on Friday as a sharp pullback in AI-related stocks triggered a broader wave of risk aversion across the market. Investors grew increasingly cautious after the sector that had powered much of this year's rally lost momentum, weighing heavily on overall sentiment.

The selling pressure began in semiconductor shares before spreading to other growth-oriented sectors, including technology and consumer discretionary. As the session progressed, investors reduced exposure to riskier assets, leading to widespread declines across major U.S. indexes.

The market's weakness reflected a shift in investor sentiment. After months of strong gains fueled by enthusiasm surrounding AI, traders opted to lock in profits and reassess valuations. The broader retreat highlighted how dependent recent market strength had become on AI-driven optimism, leaving equities vulnerable when confidence in the theme weakened.

Consequently, Meta Platforms, Inc. (META Quick QuoteMETA - Free Report) and Alphabet Inc. (GOOGL Quick QuoteGOOGL - Free Report) advanced 2.8% and 2.2%, respectively. While META carries a Zacks Rank #3 (Hold), GOOGL boasts a #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Iran Tensions Weigh on Wall Street Sentiment

Renewed concerns over tensions involving Iran heightened geopolitical uncertainty and fueled a risk-off mood. Investors worried that any escalation could disrupt global energy supplies, increase inflationary pressures and slow economic growth. The uncertainty prompted a broad shift away from equities, with technology and other growth sectors leading the market decline as traders sought safer assets.

Weekly Roundup

The three benchmark Wall Street indexes closed a losing week. For the period, the Nasdaq Composite, the S&P 500 and the Dow Jones Industrial Average declined 2.9%, 1.6% and 0.9%, respectively. AI-driven technology selloff, rising geopolitical tensions involving Iran and cautious investor sentiment triggered broad profit-taking and reduced risk appetite.

Economic Data

Per the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, for June, Housing Starts increased to 1,427,000. The number for May was revised upto 1,199,000 from the previously reported 1,177,000. Building Permits for June decreased to 1,367,000. The number for May was revised down to 1,410,000 from the previously reported 1,413,000.

Per a Fed report, Industrial Production for June increased 0.1% after increasing 0.1% in May. Capacity Utilization for June remained unchanged at 76.1.

Per the University of Michigan, the preliminary index for consumer sentiment in July increased to 54.4 from the unrevised 49.5 in June.