Another day of volatility in the realm of artificial intelligence stocks sent waves through Wall Street on Tuesday, marking a significant sell-off.
The S&P 500 experienced a decline of 0.9%, demonstrating a wild day of trading as it fluctuated between an early gain of 1% and a midday loss of 2.3%. This drop pushed the index further away from its recent all-time high achieved just a week ago. Meanwhile, the Nasdaq composite fell by 1.7%, and the Dow Jones Industrial Average decreased by 82 points, or 0.2%, as of 2 p.m. Eastern Time.
The downturn in the indexes coincided with a reversal in the fortunes of companies that manufacture computer chips and memory components pivotal to the AI industry. For instance, Micron Technology saw its stock rise by 4.2% before sliding 5.1%. This decline came a day after its shares surged by 9.9% and two days after a sharp 13.3% drop.
The stock of the memory manufacturer has tripled in value this year, sparking concerns that it has become overvalued amid rapid gains. Following last week's industry-wide sell-off, analysts are now questioning whether AI stocks are entering a prolonged downturn or merely experiencing a correction to eliminate excessive optimism.
Marvell Technology's shares plummeted by 10.7%, while Advanced Micro Devices fell by 5.9%, both companies erasing early-morning gains. Nvidia's 1.6% drop weighed heavily on the S&P 500, as it stands as the most valuable company on Wall Street and is influential in market movements.
In the backdrop, several prominent AI companies are racing to list their stocks on U.S. exchanges at advantageous prices. OpenAI, known for developing ChatGPT, recently filed confidential documents with U.S. regulators for its own IPO. Meanwhile, SpaceX may be preparing for its IPO launch later this week.
While the decline in AI stocks overshadowed the positive effects of decreasing oil prices, it’s worth noting that more S&P 500 stocks actually saw gains than losses, despite the overall drop in the index. Specifically, the price of Brent crude oil fell by 2.9%, settling at $91.56 per barrel.
Oil prices have been volatile as discussions about a potential deal between the United States and Iran fluctuate, which could lead to the reopening of the Strait of Hormuz, enabling oil tankers to resume their deliveries from the Persian Gulf to global markets.
However, oil prices later recovered some ground after former President Donald Trump accused Iran of downing a U.S. military helicopter near the Strait of Hormuz, insisting that the U.S. must respond.
High oil prices, exacerbated by the ongoing conflict with Iran, have contributed to rising inflation for American consumers and elevated bond yields worldwide, putting additional pressure on stock prices.
On Tuesday, Treasury yields relaxed slightly amid falling oil prices, with the yield on the 10-year Treasury note dipping to 4.53% from 4.56% late Monday, still notably higher than the pre-war figure of 3.97%.
Upcoming monthly updates on U.S. inflation are set to be released later this week, with consumer price data expected on Wednesday and wholesale price information on Thursday.
Given the current inflation levels and a robust job market, traders on Wall Street mostly anticipate that the Federal Reserve will need to increase its primary interest rate at least once by year-end. Such interest rate hikes aim to contain inflation but could also hinder economic growth and negatively affect stock prices among various investments.
The long-term mortgage rates in the U.S. have reached their highest levels in nine months, which, coupled with rising borrowing costs, could deter the construction of AI data centers that are critical to propelling economic growth.
In stock movements, J.M. Smucker experienced a significant surge of 9.4% after reporting better-than-expected profits for the last quarter. The company, known for brands like Folgers and Hostess, has benefitted from increased prices of coffee and sweet baked goods, aligning with many other U.S. firms that have also exceeded analyst profit forecasts, contributing to the S&P 500’s remarkable performance this year.
Furthermore, Nuvalent’s shares skyrocketed by 39.1% following GSK’s announcement to acquire the biotech firm for $10.6 billion, while GSK’s U.S. shares saw a modest increase of 1.4%.
Internationally, European markets experienced declines following stronger fluctuations in Asian indexes. South Korea’s Kospi rebounded impressively with an 8.2% surge, nearly offsetting the previous day’s 8.3% drop, driven largely by the performance of major tech companies such as SK Hynix and Samsung Electronics.
