US close: Tech stocks drag Wall Street into the red

US indices finished with heavy losses on Friday as a poor performance by heavyweight tech stocks dragged markets lower, offsetting any positivity around a barrage of uplifting economic data.

The Dow Jones Industrial Average finished the session down 0.8%, the S&P 500 dropped 1.2% while the Nasdaq tanked 1.6%.

Friday's fall entirely wiped out Thursday's strong performance – the S&P 500 had risen 0.8%, its best daily performance in over two weeks – after a raft of economic data did little to change investors' predictions that the Federal Reserve would hold rates steady when it meets next week.

Meanwhile, a blockbuster stock-market debut by Arm lifted sentiment across Wall Street, after the biggest IPO since 2021 went off with a bang. However, after a big jump the previous sessions, shares in the British chip designer reversed on Friday, along with a bunch of other heavyweight tech stocks, including Adobe.

Data starting to turn more positive

Friday saw yet another flurry of economic data, which was being closed watched ahead of next Wednesday's Federal Open Market Committee meeting. Fed chair Jerome Powell has said that the central bank is watching each economic indicator closely to gauge its approach to monetary policy decisions. “Given how far we have come, at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” he said at the Jackson Hole symposium last month.

Friday saw the release of the University of Michigan's consumer confidence index, which dipped from 69.5 for August to 67.7 in early September – below the 69.1 level expected by economists but only a moderate decline.

Joanne Hsu, the survey's director, noted the "modest" improvement in measures of short and long-run expectations for the economy.

Furthermore, inflation expectations one year ahead retreated to 3.1% – the lowest since March 2021 and just above the 2.3-3.0% range seen over the two years prior to the pandemic.

In other data releases, the so-called 'Empire State' manufacturing index jumped to 1.9 in September, from -19 the month before and well ahead of the -10 consensus forecast.

Meanwhile, US industrial production growth eased to 0.4% during the month of August, from a revised 0.7% gain in July but ahead of the 0.1% expected by analysts.

Tech stocks tank

Arm shares dropped 4% after closing at $63.59 the previous session, up 25% on the day and valuing the company at $65bn. The initial public offering, which was priced at $51, was said to be 10 times oversubscribed.

“When a stock goes up 25% in a day, there will naturally be FOMO among investors," said Russ Mould, investment director at AJ Bell. Nevertheless, Mould added that: “If Nvidia is capable of delivering mega returns, plenty of people will expect the same from Arm. However, investing is never that simple and there are plenty of risks to owning shares in Arm, including the fact it makes a quarter of revenues from China, which exposes it to geopolitical tensions between that country and the West.”

Adobe also declined 4% despite beating earnings and revenue estimates in its third quarter. Some analysts had put Friday's fall down to an underwhelming forecast for current-quarter sales, while others suggested profit-taking, with the stock having surged over 60% since the start of the year.

Other blue chip tech stocks like Microsoft, Apple, Nvidia and Palo Alto Networks were also out of favour.

Ford, General Motors and Chrysler owner Stellantis were in focus after the United Auto Workers went ahead with strikes against the Big Three automakers as workers demand better pay and benefits, along with clarity over how the industry transition to electric vehicles will affect staff. Ford finished lower, while GM and Stellantis gained.