The stock markets experienced a significant downturn on Thursday, primarily influenced by the AI sector, while oil prices surged to their highest levels since May, driven by concerns surrounding the ongoing wars with Iran.
In detail, the S&P 500 index declined by 1.2%, marking its steepest drop since July, while the Nasdaq composite index plummeted by 2.6%. Despite the overall tech sector weakness, most stocks in the broader US market saw minor gains, with the Dow Jones Industrial Average rising by 11 points, or less than 0.1%.
The fluctuations in AI-related stocks stem from concerns that escalating borrowing costs for building data centers and acquiring AI chips could hinder their growth momentum. Market participants are also wary that stock valuations have reached unsustainable levels following a prolonged period of price increases, despite many companies in the sector continuing to report strong financial performance.
For instance, Lam Research, a key player in semiconductor manufacturing, announced quarterly gains in both profit and revenue that edged past analysts’ expectations. Nevertheless, its stock suffered an 11.8% plunge.
Other tech giants faced similar fates. Meta Platforms, which is advancing its Muse AI initiative, dropped by 7% despite registering revenue growth that outperformed forecasts, as its profit fell short. The company also revealed plans for a new class of stock aimed at funding its AI ventures. Meanwhile, Tesla‘s shares slipped by 3.1% after it reported stronger-than-anticipated summer profits, although its revenue fell below expectations.
This broader decline in the tech sector also weighed heavily on Nvidia, whose stock fell by 4.4%. As Wall Street’s most valuable company, its movements significantly influence the S&P 500, effectively dragging the index lower.
Concerns about debt levels have particularly impacted CoreWeave, which recently faced turmoil due to its financial obligations tied to renting out Nvidia AI chips. The company’s stock fell by 10.1% amidst these worries.
This downturn began in Asia, affecting numerous indexes packed with tech stocks. The Kospi in South Korea dropped by 3.5%, the Hang Seng Index in Hong Kong fell by 3%, and Japan’s Nikkei 225 sank by 2.7%. Additionally, rising oil prices further weighed down global stock markets.
The price of Brent crude oil skyrocketed by 4% to reach $113.17 per barrel, its highest price in five months, driven by uncertainty over the conflict in Iran and its impact on the energy market.
In Europe, France’s CAC 40 index faced substantial losses, dropping by 1.4%. Despite containing fewer tech stocks than its Asian or US counterparts, it was negatively affected by rising yields on French government bonds—concerns about the country’s substantial debt and societal protests have further strained its budget.
The backdrop of substantial government debt continues to loom over developed economies, including the United States. High inflation and other economic indicators have recently propelled US bond market yields to their highest levels in decades. Nevertheless, yields fell sharply on Thursday as investors shifted towards US government bonds, seeking safer assets amidst the tech decline.
The yield on the 10-year treasury dropped to 4.97%, down from 5.13% late on Wednesday and from over 5.30% earlier in the month, indicating significant movement in the bond market.
This decline in yields coincided with a report showing a lower-than-expected number of new unemployment claims in the US, suggesting that layoffs remain low and the economy may be performing better than anticipated.
The robustness of the US economy has enabled many companies to report broader profit increases, contributing to the market’s record high earlier this month. However, two-thirds of the stocks in the S&P 500 rose on Thursday; this was overshadowed by significant losses in key tech stocks.
Companies like Procter & Gamble, Lockheed Martin, and CSX reported earnings that surpassed expectations for the summer, and their stock performances helped cushion the overall market’s losses.
CEO Shailesh Jejurikar of Procter & Gamble acknowledged ongoing “geopolitical and economic challenges,” yet reaffirmed their forecasts for growth in revenue and profit for the year ahead, leading to a 5.6% rise in the company’s stock price.
In summary, the S&P 500 fell by 93.74 points to close at 7,663.43. The Dow Jones Industrial Average gained 11.89 points, finishing at 52,867.98, whereas the Nasdaq composite experienced a sharp decline of 694.00 points, closing at 26,008.86.
Editor’s Take
This significant stock market downturn underscores the fragility of the tech sector, particularly in AI. As concerns over financing and inflation grow, investors may need to rethink their strategies, focusing more on long-term sustainability rather than short-term gains. For companies and developers, this could signal a period of recalibration, emphasizing the importance of robust business models in uncertain economic times.
Source: www.theguardian.com
