US and Asian Stocks Plunge Amid Ongoing AI Concerns
Recent developments in the US stock market show a troubling trend amidst ongoing concerns over artificial intelligence (AI) valuations. Solid earnings from tech leader Nvidia and retail giant Walmart, along with a boost in September job hiring and an increase in home sales, failed to stabilize investor sentiment. The S&P 500, Dow Jones Industrial Average, and Nasdaq all experienced declines on Thursday, ending the day down 1.5%, 0.8%, and over 2% respectively.
US Market Reaction and AI Valuation Concerns
Despite initial gains, US stock indexes reversed course as fears surrounding AI market bubbles intensified. Nvidia shares, which had surged earlier in the day, fell over 3%. Investment analyst James Stanley from StoneX remarked on the market’s unexpected reaction, hinting at underlying concerns.
Colleen McHugh of Wealthify noted that November has been particularly unfavorable for the Nasdaq due to persistent worries over an AI bubble. The price of Bitcoin also dropped below $90,000, its lowest since April, attributed partly to AI-related valuation fears.
AI Bubble and Market Concentration
The AI bubble narrative continues to generate anxiety, despite Nvidia’s robust performance signaling strong demand for AI chips. CEO Jensen Huang attempted to dispel concerns over valuation, stating that their perspective is markedly different. However, Wall Street remains skeptical, particularly regarding market concentration dominated by the so-called “magnificent seven” tech companies—Alphabet, Apple, Microsoft, among others. Together, these firms represent roughly 33% of the S&P 500, leading to heightened nervousness as market momentum shifts.
Asian Markets Experience Declines
Following trends in the US, major Asian markets also faced setbacks. Japan’s Nikkei 225 fell by 2.4%, with Softbank dropping nearly 11%. South Korea’s Kospi declined by 3.8%. Shares in chipmaker SK Hynix fell by almost 9%, while Samsung’s stock dropped around 5.8%. Hong Kong’s Hang Seng index was down about 2%.
Inhibitors to Market Stability
Concerns over the future of interest rates loom large for investors, awaiting delayed inflation data that may influence the Federal Reserve’s monetary policy. Currently, the S&P 500 is over 4% down this month, marking its potential worst performance since March. The Labor Department reported an increase in job creation, yet the unemployment rate rose from 4.3% to 4.4%, adding complexity to the economic outlook.
Eric Teal, a chief investment officer, indicated that sustained AI adoption and lower interest rates are crucial for maintaining market growth. However, with rising anxiety about an AI bubble, coupled with inflation concerns, financial market volatility may escalate in the near future. Teal emphasized that markets priced for perfection require consistent external support to maintain upward momentum, which is becoming increasingly questionable.
