Stocks Slump as Chip Selloff Worsens, Bonds Rise: Markets Wrap
(Bloomberg) — Stocks tumbled as mounting doubts over returns from billions of dollars of artificial-intelligence spending triggered another selloff in chipmakers from Wall Street to Asia. Bonds gained as oil retreated.
MSCI’s Asia Pacific equity gauge dropped as much as 3.6% to the lowest level since May, putting it on track for a technical correction. South Korea’s Kospi Index led regional losses, tumbling 11% as the chip rout deepened amid concerns over circular funding and rising competition from China. SK Hynix Inc. and Samsung Electronics Co. both plunged 13%.
The Asian losses followed a selloff in chipmakers on Wall Street, which sent a gauge of semiconductors down for a third day. Technology stocks were the main losers across the region, sending benchmarks in Japan and Taiwan down more than 4%. Nasdaq 100 futures dropped 1%, pointing to further weakness in tech companies. European shares were set for modest losses.
“Greed has turned into fear for AI-related semiconductor stocks,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “Investors are now interpreting every piece of news negatively and using it as an excuse to sell, rather than critically analyzing the true fundamental impact.”
Elsewhere, Brent extended Monday’s biggest decline in more than three months, falling another 0.6% to about $87.80 a barrel, as the US paused daily strikes against Iran and President Donald Trump said there’s a “good chance” of an Iran deal. Treasuries gained for a second day as inflation fears eased. The US 10-year note yield declined two basis points to 4.63%.
The selloff in chip stocks has raised the stakes ahead of a packed week of risk events, including policy decisions from the Federal Reserve, Bank of Japan and Bank of England, as well as earnings from megacap tech companies. Markets are looking for evidence that the biggest spenders on AI can justify the billions of dollars they have poured into the technology.
“This is a week with more than its fair share of potential surprises, good and bad,” said Chris Larkin at E*Trade from Morgan Stanley. “Geopolitics and oil prices may be the biggest wild cards, but a bullish response to strong Magnificent Seven earnings isn’t a given, especially if AI spending levels continue to raise eyebrows.”
What Bloomberg Strategists Say…
“Tuesday’s drop in the Kospi carries a whiff of capitulation, but a key indicator of the outlook for AI-generated demand is signaling that the floor for chipmakers may be some distance away. Silicon Data’s LLM Token Expenditure Index keeps ticking lower as firms become more cost-conscious in their use of LLMs, undermining optimism that demand for compute would continue to grow at the extraordinary pace initially seen.”
— Garfield Reynolds, MLIV Team Leader. For full analysis, click here.
The chip sector losses point to deepening concerns over crowded equity positioning and rising corporate debt levels as the AI buildout progresses. Nvidia Corp.’s fresh round of deals worth more than $750 billion has triggered worries over artificially inflated demand for AI.
A report from The Information that a Chinese state-backed company has begun mass producing immersion deep ultraviolet lithography machines has been another cause of concern. Shares of Japanese chip-equipment makers including Nikon Corp. and Tokyo Electron Ltd. both slid more than 9%.
“Investors are clearly not yet ready to brush aside concerns over the AI sector,” said Hebe Chen, a senior market analyst at Vantage Global Prime. “The latest selloff in chipmakers shows that doubts over spending, returns and valuations are still deepening rather than fading.”
AI spending is under intense scrutiny after Alphabet Inc.’s decision last week to raise its capital spending forecast to as much as $205 billion this year reignited concerns over fiscal discipline in the race to dominate the technology.
Microsoft Corp., Meta Platforms Inc., Apple Inc. and Amazon.com Inc. are among the megacaps reporting this week, while SK Hynix and Samsung will kick off earnings in Asia.
“The bar is just extremely high right now,” said Dilin Wu, a strategist at Pepperstone Group Ltd. “Beating estimates doesn’t guarantee a pop anymore. So part of what we’re seeing today is probably traders trimming ahead of results rather than waiting to find out.”
Elsewhere, the policy announcement by the Fed on Wednesday is in focus. Traders continued to see a roughly one-in-three chance of a rate hike.
Citadel Securities expects the Fed to raise rates this week — a surprise move strengthening Chairman Kevin Warsh’s credibility in the battle with inflation. A quarter-point increase on Wednesday would reinforce Warsh’s repeated pledge to restore price stability while showing policymakers no longer rely on signaling every policy move well in advance, Frank Flight, the firm’s head of macro strategy, wrote in a note.
“The market may once again be underestimating the extent of the hawkish shift at the Fed,” Flight said. A hike this week “would emphatically end the forward guidance era” while underscoring the Fed’s independence, he said.
Corporate News:
Johnson & Johnson said it agreed to a $5.5 billion commitment to resolve years of litigation related to claims that its talc products caused ovarian cancer. Taiwanese prosecutors have detained an Nvidia employee and searched the company’s offices as part of a widening probe into the alleged smuggling of AI accelerators into China, according to people familiar with the matter. Mercedes-Benz Group AG lowered its full-year guidance, citing weaker demand in China, where a prolonged property slump is undermining consumer sentiment and curbing demand for luxury vehicles. Safran SA raised its full-year guidance after strong demand for civil engine parts propelled its margin to a record. Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.3% as of 6:51 a.m. London time Nasdaq 100 futures fell 0.9% The MSCI Asia Pacific Index fell 3.4% The MSCI Emerging Markets Index fell 3.6% Japan’s Topix fell 2.6% Australia’s S&P/ASX 200 rose 0.5% Hong Kong’s Hang Seng fell 0.2% The Shanghai Composite fell 1.3% Euro Stoxx 50 futures fell 0.2% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1365 The Japanese yen was little changed at 163.73 per dollar The offshore yuan was little changed at 6.7688 per dollar The British pound was little changed at $1.3287 Cryptocurrencies
Bitcoin fell 2.2% to $63,470.71 Ether fell 3% to $1,886.54 Bonds
The yield on 10-year Treasuries declined two basis points to 4.63% Japan’s 10-year yield was unchanged at 2.780% Australia’s 10-year yield declined three basis points to 4.97% Commodities
Spot gold fell 0.8% to $4,042.74 an ounce West Texas Intermediate crude fell 0.8% to $81.95 a barrel This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sangmi Cha.
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