Key points
- S&P 500 ▼ 93.74 points (1.2%) to 7,663.43
- Dow Jones ▲ 11.89 points to 52,867.98
- Nasdaq ▼ 694.00 points (2.6%) to 26,008.86
The S&P 500 fell 1.2 per cent for its worst day since July, while the Nasdaq composite tumbled 2.6 per cent. The weakness for tech stocks was so overwhelming that it masked strength for the rest of the US market, where the majority of stocks actually rose. The Dow Jones Industrial Average added 11 points, or less than 0.1 per cent.
Why strong results weren’t enough for AI stocks
AI-related stocks have been swinging on worries that their boom may be under threat because of how expensive it’s become to borrow money to build data centres and buy more AI chips. Concerns also remain that their prices shot too high following a yearslong frenzy, even though companies in the industry continue to report growth.
Meta Platforms, which is pushing its Muse AI agent, lost 7 per cent after reporting stronger revenue for the latest quarter than analysts expected, though its profit fell short. The company behind Facebook and Instagram also said it’s creating a new class of stock to raise money to pay for AI investments and other expenses.
Tesla fell 3.1 per cent after reporting a stronger profit for the summer than analysts expected, though its revenue was weaker than forecast.
The global tide against AI stocks knocked Nvidia down 4.4 per cent. Because the chip giant is the largest company on Wall Street by total value, movements for its stock carry more weight on the S&P 500 than any other. It was the single strongest force pulling the index lower.
The selling started in Asia
The weakness for AI and other tech stocks began in Asia, where indexes are full of players in the industry. South Korea’s Kospi tumbled 3.5 per cent, Hong Kong’s Hang Seng dropped 3 per cent and Japan’s Nikkei 225 sank 2.7 per cent.
Oil hits a five-month high
Also weighing on global stock markets was a jump in oil prices.
The price for a barrel of Brent crude oil leaped 4 per cent to US$113.17 after touching its highest level in five months. It’s shot up from less than US$97 at the start of the month on uncertainty about when the war with Iran will allow the global energy industry to return to normal.
Government debt worries rattle bond markets
In Europe, France’s CAC 40 stock index fell to one of the continent’s sharpest losses with a drop of 1.4 per cent. It has fewer tech stocks than Asian or US indexes, but it was hurt by another jump in yields for French government bonds.
Yields have been generally climbing there because of worries about the government’s big debt load and strained budget. Violent protests across France have raised pressure on the government to increase spending, which could add further to its debt.
Worries about big government debt are weighing on almost every developed economy in the world, including the United States. Such concerns, along with high inflation, signals of a still-strong US economy and other factors, have pushed yields in the US bond market recently to their highest levels in decades.
Investors run to the safety of US bonds
But US yields nevertheless fell sharply Thursday in a signal that investors were buying US government bonds in search of something safer to own as AI stocks tumbled.
The yield on the 10-year Treasury tumbled to 4.97 per cent from 5.13 per cent late Wednesday and from more than 5.30 per cent earlier this month. That’s a major move for the bond market.
Thursday’s drop in yields came even as another report suggested the US economy may be doing better than economists expected. It said fewer US workers applied for unemployment benefits last week, which could signal that layoffs remain low across the country.
Most stocks rose, but tech drowned them out
That solid economy has helped US companies broadly to make bigger profits, which is what propelled the US stock market to a record high earlier this month despite the many worries tugging at it. Two out of every three stocks within the S&P 500 rose Thursday, only to get drowned out by the drops for more influential tech stocks.
All told, the S&P 500 fell 93.74 points to 7,663.43. The Dow Jones Industrial Average added 11.89 to 52,867.98, and the Nasdaq composite tumbled 694.00 to 26,008.86.
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