Stocks Decline as AI Trade Comes Under Pressure: Markets Wrap
(Bloomberg) — A selloff in technology stocks on Wall Street extended into Asia, with losses in the artificial intelligence trade — one of the market’s hottest corners this year. Oil declined.
MSCI’s Asia Pacific equities gauge dropped 1.5%, set for its weakest close since August. Chip stocks in South Korea and Taiwan — barometers for the AI trade — tumbled as concerns over Chinese rivals prompted investors to rotate out of the sector. SK Hynix Inc., Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. all retreated.
Futures contracts for the Nasdaq 100 Index slid 0.5% after the underlying gauge fell to its lowest level this month. On Monday, a US gauge of chip stocks sank 2.7% to reach its lowest level since mid September.
Brent crude dropped 0.9% to $105.66 a barrel, paring its recent advance. A Bloomberg gauge of the dollar edged lower, snapping a four-day gain. Meanwhile, the benchmark 10-year Treasury rose, with yields dropping three basis points to 5.21% as cash trading resumed after a holiday.
With the US reporting season set to begin, enthusiasm for AI stocks has faded as investors question whether heavy spending on the technology will generate sufficient returns given high borrowing costs. After a four-year bull run that lifted the S&P 500 Index nearly 120% from its 2022 low, stretched valuations have left equities increasingly vulnerable to disappointing results.
“Sentiment appears as negative as we’ve seen for some time, buyers are stepping aside, and sellers are finding relatively little resistance in pushing prices lower,” Chris Weston, head of research at Pepperstone, wrote in a note. “The bears have the upper hand across much of the AI trade.”
Warnings are mounting around the AI trade, with Broadcom Inc. chief executive officer Hock Tan the latest to flag concerns.
The AI boom has attracted investors whose strategies resemble those of gamblers, he said on Monday, suggesting some of them have little understanding of what they’re betting on.
What Bloomberg’s Strategists Say…
“The dour mood across Asian stocks is going to be tough to overcome in the short term as investors need to wait until Thursday for TSMC’s quarterly earnings. That will feel like a distant event to Asian equity traders, who are buffeted by warnings from the likes of Broadcom’s CEO who likened many AI investors to casino gamblers.”
— Mark Cranfield, MLive Strategist. For full analysis, click here.
Last week, billionaire Ray Dalio warned that AI is a “classic bubble” that is nearing a bursting point thanks to rising interest rates and the need to turn wealth into cash.
Competition is also increasing. A report said Chinese rival CXMT made progress on a memory-chip design capable of storing more data. Meta Platforms Inc. unveiled its Muse Wonder AI model.
Investors also remain concerned at the billions technology companies have raised this year to fund the AI buildout.
“There is a concern the issuance is crowding out all different types of other bond issuance and causing a fair amount of, frankly, upset stomachs around the bond market,” April LaRusse, co-head of global client portfolio management at BNY Investments, said on Bloomberg Television. .
Korea’s Kospi Index slipped 6.1%, set for its lowest close since July. The Nikkei 225 Index dropped 2.6% as traders in Tokyo returned after a long weekend.
In Asia, focus will also be on the Indian rupee after the nation’s most aggressive currency defense in more than a decade is telling market watchers that the central bank is prepared to pull out all the stops to keep the currency from weakening beyond 97 per dollar.
Meanwhile, the earnings season in the US gets underway Tuesday, with Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. due to report. Bank of America Corp. and Morgan Stanley follow Wednesday.
S&P 500 companies are estimated to post a 25% increase in third-quarter profits from a year earlier, according to data compiled by Bloomberg Intelligence.
Corporate Highlights:
Sales at LVMH’s biggest division slumped as worsening economic conditions and a consumer backlash in China hit its key Louis Vuitton brand. Microsoft Corp. is gearing up to install the latest version of its own chips in data centers, with the aim of powering its AI software using mostly homegrown hardware. Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.1% as of 10:27 a.m. Tokyo time Nikkei 225 futures (OSE) fell 3% Japan’s Topix fell 0.5% Australia’s S&P/ASX 200 fell 0.4% Hong Kong’s Hang Seng fell 0.4% The Shanghai Composite fell 1% Euro Stoxx 50 futures fell 0.3% Currencies
The Bloomberg Dollar Spot Index was little changed The euro rose 0.1% to $1.1168 The Japanese yen rose 0.1% to 158.43 per dollar The offshore yuan was little changed at 6.6929 per dollar Cryptocurrencies
Bitcoin fell 1.3% to $81,931.24 Ether fell 2.9% to $2,443.72 Bonds
The yield on 10-year Treasuries declined three basis points to 5.21% Japan’s 10-year yield declined seven basis points to 3.010% Australia’s 10-year yield was little changed at 5.32% Commodities
West Texas Intermediate crude fell 0.9% to $92.92 a barrel Spot gold fell 0.3% to $4,158.49 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Abhishek Vishnoi and Youkyung Lee.
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