Stan Choe
Another sell-off for high-flying artificial-intelligence stocks whipsawed Wall Street.
The S&P 500 dropped 0.9 per cent after careening between an early gain of 1 per cent and a midday loss of 2.3 per cent, sinking further from its all-time high set a week ago. The Nasdaq composite was 1.7 per cent lower, and the Dow Jones Industrial Average was down 82 points, or 0.2 per cent, in mid-afternoon trade.
The Australian sharemarket is set to edge higher, with futures at 4.58am AEST pointing to a gain of 14 points, or 0.2 per cent, at the open. The ASX fell by 0.2 per cent on Tuesday after recovering from a sharp sell-off in early trade. The Australian dollar was trading at US70.29¢.
Indexes swung lower as companies selling computer chips, memory and other building blocks of the AI boom broke from early gains to losses. Micron Technology went from a jump of 4.2 per cent to a drop of 5.1 per cent, for example. That’s a day after it soared 9.9 per cent and two days after it plunged 13.3 per cent.
The computer memory company’s stock has already tripled so far this year, raising criticism that it’s gone too far, too fast. Following last week’s industry-wide selloff, the question is whether AI stocks broadly are heading for a long downturn or just needed a shake-out to get rid of excessive optimism.
Marvell Technology dropped 10.7 per cent, and Advanced Micro Devices sank 5.9 per cent after both AI winners also erased early-morning gains. Nvidia’s fall of 1.6 per cent was one of the heaviest weights on the S&P 500 because the chip company is Wall Street’s largest company by value and thus its most influential.
All the while, several big-name AI companies are racing to list their stocks on a US exchange and sell them at high prices. OpenAI, the maker of ChatGPT, said Monday it was the latest to file confidential paperwork with US regulators for an initial public offering. SpaceX’s IPO could happen later this week.
The weakness for AI stocks drowned out the benefit Wall Street got from easing oil prices. More stocks in the S&P 500 actually rose than fell, despite the sharp drop for the overall index, as the price for a barrel of Brent crude oil sank 2.9 per cent to $91.56.
Oil prices have swung as hopes rise and fade that the United States and Iran can reach a deal to reopen the Strait of Hormuz. A reopening would allow oil tankers to resume delivering crude from the Persian Gulf to customers worldwide.
Oil prices pared their losses, though, after President Donald Trump said Iran was responsible for downing an American military helicopter near the Strait of Hormuz and that the United States “must” respond to the attack.
High oil prices caused by the war with Iran have already created a painful acceleration of inflation for US shoppers. They have also pushed bond yields higher worldwide, raising the pressure on stock prices.
Treasury yields eased a bit Tuesday with the fade in oil prices. The yield on the 10-year Treasury fell to 4.53 per cent from 4.56 per cent late Monday, though it’s still well above its 3.97 per cent level from just before the war with Iran.
The latest monthly updates on US inflation will arrive later in the week, with one on consumer prices coming Wednesday and one on wholesale prices coming Thursday.
Inflation is high enough, and the US job market looks strong enough, that traders on Wall Street largely expect the Federal Reserve will have to raise its main interest rate at least once by the end of this year. Higher interest rates would keep a lid on inflation, but they would also threaten to slow the economy and undercut prices for stocks and all kinds of other investments.
The average long-term US mortgage rate has already recently climbed to its highest level in nine months, and high costs to borrow money could discourage the building of AI data centres that are fuelling the US economy’s growth.
On Wall Street, J.M. Smucker jumped 9.4 per cent after reporting a stronger profit for the latest quarter than analysts expected.
The company behind the Folgers, Hostess and other brands benefited from higher prices charged for coffee and sweet baked goods. It joined the long list of US companies delivering stronger profit growth than analysts expected, which has helped drive the S&P 500 to record after record this year.
Nuvalent soared 39.1 per cent after GSK agreed to buy the biotech company for $US10.6 billion. The shares of UK-based GSK that trade in New York added 1.4 per cent.
In stock markets abroad, indexes dipped in Europe following bigger moves in Asia.
South Korea’s Kospi jumped 8.2 per cent and nearly recovered Monday’s plunge of 8.3 per cent. It’s been beholden to the performance of big tech stocks like SK Hynix and Samsung Electronics.
AP
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