US stocks shrug off AI pullback as S&P 500 gains 0.7%

The S&P 500 rose 0.7% Friday as Amazon's 15.3% surge offset a 7.4% Apple drop and a $1.3 trillion chip selloff.

"The pullback in AI-related stocks has been almost completely offset by gains elsewhere," the Wall Street Journal said, pointing to a U.S. record of creating bubbles and shrugging them off.

The Dow Jones Industrial Average advanced 276 points, or 0.53%, while the Nasdaq Composite climbed 1.6%. Microsoft added $450 billion in market value last week, surging 21.7% to $464.72 after Azure revenue climbed 43%. Amazon jumped 15.32% to $271.58 as AWS operating profit rose 78%. Apple slid 7.4% to $308.91, erasing $358 billion in market capitalization, after September-quarter revenue guidance of 9%-11% trailed the Street's 12% forecast.

The divergence shows investors are rewarding companies that convert AI spending into revenue while punishing those that absorb higher costs, a shift that could keep the S&P 500 resilient even as valuations sit near record highs. The Federal Reserve's next meeting lands in September, where futures price a 65% probability of a rate increase.

Most of the S&P 500's 11 sectors closed higher Friday, with technology the biggest contributor after a 5.2% weekly gain. More stocks rose than fell, a breadth signal that distinguishes this recovery from a narrow, AI-led advance. The Russell 2000 was little changed, showing the gains remain concentrated in large-cap technology.

The week's swings were severe. Between July 24 and July 28, leading chipmakers collectively shed $1.3 trillion in market value, with Nvidia off $238 billion and Micron down $113 billion. Nvidia has since regained the top spot as the world's most valuable company at roughly $4.90 trillion, climbing 2.9% to $200.75 on Friday. Micron, which slid 10.6% for the week to $823.03, still trades at seven times forward earnings after posting a record $41.5 billion in fiscal third-quarter revenue.

Yields, oil keep pressure on the rally

The equity advance unfolded against a backdrop of rising borrowing costs. The 10-year Treasury yield touched 4.75%, a 1.5-year high, while the 30-year yield reached 5.27%, the highest since 2007. West Texas Intermediate crude settled near $87.93 a barrel, up on supply risks from the Middle East conflict and Ukrainian drone strikes on Caspian Pipeline Consortium assets. The dollar index added 0.189.

The Federal Reserve held its target range at 3.50%-3.75% last week, though three officials backed an increase on persistent inflation risks. Chair Kevin Warsh has pushed for less forward guidance, a stance that could add to bond-market volatility as investors reassess the path of policy.

History favors patience

The pattern of sharp drawdowns followed by recovery is well established. Nearly half — 48% — of the S&P 500's top 50 trading days from 1996 to 2025 took place during bear markets, according to data cited by the Motley Fool, suggesting panic selling typically undermines long-term results. The S&P 500 has notched a record high 23 times in 2026 even as consumer confidence fell to historic lows.

The question is whether the AI trade can keep absorbing shocks. Microsoft's results showed large AI investments can still produce strong revenue and cash flow, with commercial remaining performance obligations soaring 84% to $678 billion. But Meta Platforms' 91% drop in free cash flow in the second quarter shows the cost side of the ledger is uneven. The S&P 500's market capitalization-to-GDP ratio and Robert Shiller's CAPE both sit near the second-highest levels in history, trailing only the dot-com peak of 1999-2000.

For now, the market's ability to shrug off the AI pullback keeps the bull case intact. The Dow Jones Industrial Average closed at 52,507, holding above the 51,700 support level that analysts flagged, with the next resistance target near 55,000. A break above 7,620 in the S&P 500 would confirm a move toward 8,000, according to technical analysis from Gold Predictors.

This article is for informational purposes only and does not constitute investment advice.