On Tuesday, US markets continued their downward trend, with the Nasdaq experiencing a decline of over 2% amid a wave of volatility impacting technology stocks globally.
South Korea faced a significant market downturn, particularly hit by a more than 12% drop in shares of Samsung and SK Hynix, as semiconductor manufacturers triggered losses throughout Asia.
Concerns are rising among traders that AI company valuations might have escalated to unsustainable levels.
The recent unrest in the stock market appears to be reignited by fears surrounding artificial intelligence once again. A mild sell-off in US tech stocks on Monday transitioned into a heightened sense of uncertainty in Asia on Tuesday. Panic trading ensued in South Korea, leading to a 10% plunge in the Kospi index, which prompted a 20-minute trading halt as a circuit breaker was activated.
The declines of SK Hynix and Samsung, which comprise nearly half of the Kospi’s total market capitalization, contributed significantly to South Korea's broader market slump.
Traders seem to be acting on apprehension rather than any particular trigger, with no clear catalyst evident for the heightened selling activity.
In the United States, technology stocks also appeared poised for a rough day, with the Nasdaq dropping 1.9% in the morning session following a 1.3% decrease the previous day. The wider S&P 500 index fell by 1.3%, and the Dow Jones Industrial Average opened 260 points lower, down 0.5%. The volatility indicator on Wall Street surged by 17%, reflecting increased market anxiety.
Some market analysts linked this unease to declines seen in shares of Google and SpaceX on Monday. Google saw a 5% drop primarily due to a top AI executive leaving for Anthropic, while SpaceX experienced a 16% drop amid typical post-IPO unsettledness.
On Tuesday, Google dipped an additional 1%, and SpaceX fell 4.6%. Nvidia dropped around 3%, exerting pressure on the overall market. Oracle also declined by 2%, marking a 25% decrease for the month.
Other experts suggested that market movements might be influenced by expectations of potential interest rate hikes from the Federal Reserve later this year. This theory isn’t entirely new, as new Fed Chairman Kevin Warsh indicated an aggressive approach to controlling inflation during a press conference last Wednesday, sparking a sell-off as investors interpreted his comments as a sign of impending rate increases.
Semiconductor stocks, which have led this year’s market advancements, saw significant declines on Tuesday, with Micron Technology falling 11% and Marvell Technology down 7%.
The volatility surrounding AI companies, which have sky-high valuations and impressive growth trends, means that even minor disturbances can prompt swift reactions from investors. The Kospi index has surged by 90% this year; therefore, unexpected shifts can cause traders—and trading algorithms—to hastily exit positions, driven by fears of a potential collapse.
As always, the challenge with markets is the uncertainty regarding how high this figurative “Jenga tower” might reach; it’s possible that we could still be laying a strong foundation.
This growing apprehension in South Korea rippled across Asia, where Japan’s Nikkei index slid by 3.6%, and tech giant Softbank dropped by 15%. Other Asian markets also recorded declines of over 1%.
Despite the recent pressures on tech stocks, overall declines have been relatively modest, with the Nasdaq showing about a 5.5% decrease from its all-time high reached on June 2.
For most of the past few months, stocks have remained near record levels. The market shifted focus following a ceasefire announcement in Iran by President Donald Trump in April, redirecting its attention back to the dynamics of AI and the Federal Reserve's interest rate policies.
On the commodities front, oil prices saw slight declines on Tuesday morning as traders received positive news regarding potential advancements in peace negotiations.
