The S&P 500 and the Nasdaq touched their lowest in five weeks as caution prevailed after a sharp sell-off in AI-linked stocks, while telecom stocks tumbled on fears that intensified competition from SpaceX could erode their market share.
For the week, the benchmark S&P 500 and the Nasdaq were on track for losses, while the blue-chip Dow remained higher, supported by gains in defensive sectors as investors sought refuge from volatility in technology stocks.
The S&P 500 communication services index was down one per cent, as AT&T, Verizon and T-Mobile fell between three per cent and 4.7 per cent after a report said SpaceX was in talks with mobile infrastructure companies about launching a nationwide wireless carrier program.
US mobile tower operators, however, gained from this news, with Crown Castle up 12.6 per cent and American Tower up 6.9 per cent.
SpaceX shares gained 1.2 per cent.
AI-related shares swung sharply this month, first coming under pressure over CoreWeave's debt burden and the cost of financing AI investment, then rallying on Wednesday after upbeat results from SpaceX and Super Micro .
The gains reversed on Thursday and the tech-heavy Nasdaq fell nearly three per cent. The slide accelerated following Meta's nearly eight per cent decline after the Facebook parent reported its first cash outflow in more than a decade amid concerns over its AI-related expenditures.
On Friday, CoreWeave shares added 0.3 per cent, and 'Magnificent 7' stocks were little changed, with Meta falling 1.3 per cent.
"This is the short term where the selloff is extreme, and I don't think there are fundamental reasons for it," said Kim Forrest, chief investment officer at Bokeh Capital Partners.
"We're at the beginning of a long cycle of AI and people thought it was going to be much shorter."
Market focus remains on the earnings season, with major companies such as Microsoft, Alphabet and Amazon reporting next week.
In early trading on Friday, the Dow Jones Industrial Average fell 535.54 points, or 1.01 per cent, to 52,332.44, the S&P 500 lost 29.14 points, or 0.38 per cent, to 7,634.09 and the Nasdaq Composite lost 23.61 points, or 0.08 per cent, to 25,986.76.
Nine of 11 sectors on the S&P 500 declined. The energy index rose to a record high, tracking gains in oil prices, while the real estate index advanced 0.8 per cent.
Brent crude held near a more-than-five-month high amid Middle East supply concerns, adding to inflation worries ahead of the Federal Reserve's policy meeting next week.
Markets expect the Fed to keep interest rates unchanged at its meeting next week, according to the CME's FedWatch Tool.
S&P 500's third-quarter profit growth is now forecast at 32.3 per cent, up from 30.7 per cent previously, according to LSEG data.
Among major movers, Comfort Systems was the biggest loser on the benchmark index, with a 10.1 per cent fall, despite its third-quarter revenue and profit beating estimates.
Bloom Energy dropped 11.3 per cent even after the energy firm raised its fiscal 2026 forecast.
Western Digital fell 1.8 per cent, despite the data storage products company posting a strong second-quarter revenue forecast.
SLB rose 2.4 per cent after the oilfield services provider beat Wall Street estimates for third-quarter profit.
Declining issues outnumbered advancers by a 2.4-to-1 ratio on the NYSE and by a 2.03-to-1 ratio on the Nasdaq.
The S&P 500 posted 16 new 52-week highs and 6 new lows, while the Nasdaq Composite recorded 29 new highs and 190 new lows.