Stocks opened modestly higher Wednesday, though the enthusiasm quickly faded. A continued sell-off in artificial intelligence (AI) heavyweights and worries over a potential government shutdown weighed on sentiment, while some end-of-quarter profit taking likely created pressure on the three main indexes.
At the close, the blue chip Dow Jones Industrial Average was down 0.4% at 46,121, the broader S&P 500 was off 0.3% at 6,637, and the tech-heavy Nasdaq Composite was 0.3% lower at 22,497. Still, the three indexes are poised to end the quarter and the month with impressive gains.
Materials was the worst performer of the 11 S&P 500 sectors, pressured by a 17% decline in Freeport McMoran (FCX). The company cut its third-quarter sales guidance after halting operations earlier this month at its Grasberg Block Cave mine in Indonesia following a fatal mud rush incident.
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The technology sector also closed in the red as mega-cap AI stocks Nvidia (NVDA, -0.8%) and Oracle (ORCL, -1.7%) fell for a second straight day.
Micron stock drops after earnings
Micron Technology (MU) also closed lower after the memory chipmaker reported earnings. For its fiscal fourth quarter, Micron disclosed higher-than-expected earnings and revenue. It also gave strong guidance for its fiscal first quarter.
Needham analyst Quinn Bolton says Micron's earnings show that "the AI demand environment remains robust," and the "DRAM supply environment is becoming increasingly tight." He adds that "the NAND demand environment is improving."
Bolton reiterated his Buy rating on MU after earnings and lifted his price target to $200 from $150, representing implied upside of more than 33% to current levels.
Considering the semiconductor stock was up almost 40% for the month to date heading into Wednesday evening's print, today's 2.8% decline was likely a "sell-the-news" situation.
Alibaba stock pops on AI spending forecast
Not all of the day's action was to the downside. U.S.-listed shares of Alibaba Group Holding (BABA) popped 8.2% after the Chinese conglomerate said it plans to increase its AI spending.
"We are vigorously advancing a three-year, 380 billion [yuan] AI infrastructure initiative with plans to sustain and further increase our investment according to our strategic vision in anticipation of the [artificial superintelligence] era," said CEO Eddie Wu during Alibaba Cloud's annual technology conference.
Jefferies analyst Thomas Chong has a Buy rating and $178 price target on BABA stock.
"Alibaba has multiple growth drivers for the years ahead, in our view, with its core marketplace a strong cash cow that enjoys secular growth momentum amid the consumption upgrade in China," Chong writes in a note to clients.
He adds that the company "has clear market leadership" in cloud computing, serving "as the backbone of digitalization across different industries."
Lithium Americas soars on potential U.S. stake
Lithium Americas (LAC) soared 95.8% on Wednesday amid reports that the Trump administration is considering taking a 10% stake in the Vancouver-based mining company.
The proposed equity stake comes as LAC renegotiates a $2.26 billion loan from the Department of Energy for its Thacker Pass mine, with the discussions confirmed by the company.
The mine, which LAC runs as a joint venture with General Motors (GM, +2.3%), is located in northern Nevada and is expected to be one of the biggest lithium sources in North America.
Lithium is a key element used in rechargeable lithium-ion batteries that power many of our favorite things, including smartphones, laptops and electric vehicles.
New home sales surge in August
In economic news, data from the Census Bureau showed that new home sales jumped 20.5% from July to August, to a seasonally adjusted annual rate of 800,000 – a three-year high. Figures for June and July were upwardly revised.
"The surge reflects slightly lower mortgage rates and an increase in builders offering buyer incentives," say Wells Fargo Senior Economist Charles Dougherty and Economic Analyst Ali Hajibeigi.
But the two say to take today's data "with a huge grain of salt. New home sales are prone to heavy revisions. A flat-ish trend in sales, similar to what has been evident all year, seems more likely."
This week's economic calendar heats up tomorrow with several Fed speakers on tap. The second reading on Q2 gross domestic product (GDP) is also due.
And on Friday, Wall Street will be tuned into Personal Consumption Expenditures (PCE) Price Index data for August.
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