(July 17): A sell-off in chipmakers dragged down stocks amid concerns over whether massive artificial-intelligence investments will justify lofty valuations, with a resurgence in geopolitical risks also weighing on sentiment.
In a renewed bout of volatility, a key gauge of chip giants slumped 4.3%. A solid outlook from Taiwan Semiconductor Manufacturing Co was overshadowed by a higher spending forecast. The Nasdaq 100 fell 1.6%. Alphabet Inc sank 4.4% as Google was said to be months behind schedule on delivering its most powerful flagship AI model. In late hours, Netflix Inc slid after predicting a second straight quarter of slowing sales growth.
Traders are grappling with whether tech stocks have grown too richly valued amid all the uncertainty over when trillions of dollars in spending will deliver lucrative returns. The four biggest US AI operators are expected to spend more than US$725 billion ($935.65 billion) this year alone.
The fact that TSMC is seeing such a negative response to strong numbers must be raising concerns about this all-important leadership group among investors, according to Matt Maley at Miller Tabak.
“The action in the chip stocks going forward is still the most important issue for the stock market,” he said. “They are definitely showing some meaningful cracks, so they’re going to have to see a strong and sustainable rebound soon or it will raise some raise some real warning flags.”
Heightened geopolitical threats also kept a lid on risk appetite, with the US intensifying strikes against Iran. Oil dipped but remained higher for the week, raising concern about future inflationary pressures that could make the Federal Reserve boost rates before the year is over. Bond yields edged up.
See also: US stocks rise as inflation data outweighs chip rout
Fed Bank of Kansas City President Jeff Schmid said inflation is his biggest worry given the risk of a further acceleration in the months ahead. His Dallas counterpart Lorie Logan called for higher rates, saying inflation does not appear to be heading sustainably back to the target.
Traders also parsed some key economic reports. Jobless claims fell last week while retail sales rose modestly in June, dragged down by a drop in gas-station receipts that masked strong gains at some merchants.
“Despite challenges, consumers are still spending, and the labour market shows no signs of cracking,” said Ellen Zentner at Morgan Stanley Wealth Management. “This type of data won’t move the Fed’s needle either way, but it underscores the ongoing resilience of the US economy.”
See also: Stocks, bonds rise as soft CPI curbs Fed-hike bets
Consumer spending is a critical engine, and investors want to see households continue opening their wallets, according to Bret Kenwell at eToro. June’s retail sales report was not particularly robust, but it was not a red flag either — especially given the upward revision to May, he said.
“Earnings should help separate signals from noise, revealing whether consumers remain resilient or are finally starting to pull back,” Kenwell concluded.
Uploaded by Isabelle Francis
