Market Confusion Amidst Strong Economic Indicators
An influx of promising business reports from the United States was anticipated to assuage market anxieties, which have been evident over recent weeks.
However, even buoyant sales from the artificial intelligence (AI) chip behemoth Nvidia and the retail giant Walmart, coupled with better-than-expected hiring figures for September and a modest rebound in home sales, have failed to alleviate investors’ trepidations.
The three principal US stock indexes experienced a decline on Thursday, reversing an early morning upswing. The S&P 500 concluded the day down by 1.5%, while the Dow Jones Industrial Average dipped by 0.8%, and the Nasdaq Composite saw a reduction exceeding 2%.
On Friday, major Asian stock markets similarly faltered.
Nvidia and Market Analyst Insights
In New York, shares of Nvidia, which had surged earlier in the day, declined more than 3% by day’s end.
“The market’s reaction is striking; what should have occurred, did not,” remarked James Stanley, a senior analyst at StoneX, commenting on the abrupt reversal in the US market’s upward trajectory on Thursday.
“One must consider what is transpiring beneath the surface,” he added.
Colleen McHugh, an investment consultant with Wealthify, conveyed to the BBC’s Today programme that historically, November has been a “dismal month” for the Nasdaq.
“Concerns about an AI bubble continue to loom,” she articulated.
Additionally, the price of Bitcoin experienced a fall on Thursday, extending its recent slide to dip below $90,000, marking its lowest level since April. Analysts linked this downturn to apprehensions regarding AI valuations.
Amidst swirling speculation of an AI bubble, Nvidia’s robust earnings—highlighting the company’s sustained growth driven by prolific demand for its AI chips—offered a fleeting boost to stock prices in after-hours trading on Wednesday and early Thursday.
CEO Jensen Huang dismissed fears of AI overvaluation, stating, “Our perspective is markedly different,” during a discussion with analysts.
Despite Huang’s reassurance and the chip-maker’s stellar performance—which positions it as a benchmark for the AI expansion—Wall Street’s apprehensions endure, as noted by investment analysts. Such fears have been amplified this month.
McHugh emphasized concerns over market concentration, pointing out that the so-called “magnificent seven” tech stocks, including Alphabet, Apple, and Microsoft, dominate approximately 33% of the S&P 500. “When momentum is favorable, it’s advantageous, but recent downward trends have sparked considerable anxiety,” she stated.
Asian Market Reactions
In Asia, Japan’s Nikkei 225 experienced a drop of over 2.5% post-lunch, highlighted by an over 10% plunge in technology giant Softbank’s shares.
South Korea’s Kospi fell by around 4%, as chipmaker SK Hynix faced an 8% decline and shares of Samsung sank nearly 6%.
Hong Kong’s Hang Seng index registered a decrease of almost 2%.
Speaking to the BBC this month, Alphabet CEO Sundar Pichai cautioned against potential “irrationality” surrounding the current AI surge.
Analysts from Oxford Economics posited that the recent downturn in technology stocks signals “a healthy correction rather than an ominous threat.” They previously indicated that profit-taking could affect tech equities in the short term, but maintained that it’s premature to declare the demise of the AI investment boom.
Investor Sentiments and Economic Outlook
Meanwhile, investors remain apprehensive about the trajectory of interest rates, eagerly anticipating vital inflation data that had been delayed due to the US government shutdown—data that could influence the Federal Reserve’s policy direction into next year.
Thus far in November, the S&P 500 index has declined over 4%, indicating a potential worst-performing month since March.
Stanley noted that market participants are “squaring up,” attempting to navigate uncertainties surrounding the economy and whether the Fed might opt to maintain elevated interest rates should inflation rise.
“There exists a considerable amount of trepidation regarding inflation; the situation is quite opaque,” he said.
Thursday’s employment report provided little clarity on the Fed’s upcoming rate decisions, as highlighted by Eric Teal, Chief Investment Officer at Comerica Bank. While September added 119,000 jobs—significantly exceeding analysts’ expectations—the unemployment rate ticked up from 4.3% to 4.4%, resulting in ambiguous implications for the Fed’s December meeting and beyond.
Teal pointed out that sustained AI adoption and lower interest rates are integral to maintaining upward momentum in the stock market. He warned that escalating concerns over an AI bubble and inflation could inject further volatility into financial markets well beyond the current month.
“In a market that is priced for perfection, every external catalyst must align to maintain growth,” Teal remarked, adding, “Many of those catalysts have been brought into question over the past three weeks.”
Source link: Bbc.com.
