(July 7): Wall Street was rattled by a selloff in chipmakers on concerns over whether massive artificial-intelligence investments will justify lofty valuations while a jump in oil prices boosted bond yields.
This year’s best-performing corner of the stock market was pummeled, with a gauge of semiconductor firms sinking over 4.5%. Not even Samsung Electronics Co’s record profit was enough to entice investors. The Nasdaq 100 declined 1.8%. SpaceX joined the index. Despite weakness in tech, most S&P 500 companies rose, signaling rotation into other industries.
A flare-up in geopolitical risks saw US crude hitting US$72 in late hours as the Treasury Department revoked a waiver that allowed the sale of Iranian oil in response to strikes on tankers in the Strait of Hormuz. Worries that higher energy costs could fuel inflation spurred a drop in Treasuries.
The spate of attacks is a reminder of the continued risks to ships crossing through the vital waterway, with increased tensions jeopardizing an interim peace deal between the US and Iran.
Meantime, global semiconductor firms have faced turbulence on concerns about increased competition, possible overcapacity and whether the billions of dollars in AI investments will pay off.
“While we remain confident in AI’s growth story and continue to see attractive opportunities in semis and hardware, we have also highlighted that the next leg of equity gains is likely to be marked by a broadening of market leadership,” said Ulrike Hoffmann-Burchardi at UBS Chief Investment Office. “Investors should ensure diversified exposure.”
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“The issue of rotation between different sectors is a popular one right now, but the rotation within the tech sector could be the most important one to keep an eye on,” said Matt Maley at Miller Tabak. “If it can continue, the bulls will remain in charge.”
Maley noted the equity rally has “flattened out” over the past four to six weeks, but that could be seen as merely a “breather” after the extremely strong run the market saw in April and May.
While earnings season kicks off next week with big banks, questions about the tech outlook will be front and center throughout the reporting period. The big risk is that technology firms, especially the hyperscalers, won’t beat analysts’ overly optimistic estimates for the quarter, according to veteran strategist Ed Yardeni.
See also: Tech stocks rebound as dip buyers pounce on chip pullback
“That could cause a correction among technology stocks,” he said. “The overall stock market might dodge a correction if investors rotate into sectors that have lagged and report better-than-expected earnings. We are in the rotation camp for the stock market’s outlook up ahead.”
Uploaded by Isabelle Francis
