Article published at 9:05 a.m. CT
JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- Tech stocks are in a free fall
- Drops follow global tech selloff
- SpaceX set for fourth straight day of declines
The markets are looking at steep declines in early trading amid a global tech selloff of tech stocks as investors worry about high-priced valuations and heavy AI spending. Yesterday’s tech drop triggered a global meltdown that pressed South Korea’s tech-heavy Kospi index 10% lower, off record levels.
Memory stocks Micron, Seagate, Sandisk and Western Digital all tumbled 7% and 8%, but are still swimming in triple-digit gains this year. This reflects how investors are taking a breather from these high-flying tech stocks. AI leaders including Advanced Micro Devices, Nvidia and Intel are slumping as well. SpaceX shares are in a free fall again today, down nearly 5% as it sheds billions of dollars in valuation and flirts with its opening price of $150.
Investors are also wary of potential interest rates hikes as well as progress between the U.S. and Iran’s peace talks in play in Geneva, Switzerland. Yesterday, the White House temporarily lifted oil sanctions against Iran, which allows Iran to charge market prices and expands its market availability. WTI Crude prices were lower by roughly 1.5%, in the $73 a barrel range, its lowest levels since early March. The silver lining in today’s trading is that it appears to be more about market fundamentals than geopolitical factors.
In early trading, the tech-dominated Nasdaq Composite was dropping by nearly 3%, leading the major market selloff. The Dow Jones Industrial was lower by 0.45% and the S&P 500 was backtracking by 1.4%. Treasury yields are also falling with the 10-year holding below 4.5%.
As worrisome as this might look, it’s not a time to panic because it shows that we are in a flux state as the market is still grappling with how to price AI and related stocks. But do keep an eye on the Cboe Volatility Index, which is swinging above 20, traditionally the warning level.
A handful of the Dow’s consumer stocks were floating higher, including P&G, Coca-Cola, Johnson & Johnson and Walmart, which was higher by 1%. Amazon’s Prime Days begin today, but Walmart, Target and others are also having specials this week. Keep watch on those stocks, which often reflect consumer spending.
FedEx is slated to report earnings after the bell today. Wall Street expects earnings to fall slightly off from year-ago results but see an increase in revenues. Investors will be listening for its comments on the health of its shipping, especially since the spinoff of its freight division. FedEx’s shipping results tend to be a good way to synthetically measure consumer health.
Alphabet shares were backtracking by another 1.9% again. Alphabet’s stock toppled 5% yesterday amid worries of a brain drain from the AI conglomerate to rivals. John Jumper, a Nobel Prize winning scientist, is departing to AI startup Anthropic. That follows Noam Shazeer’s recent exit to OpenAI.
Caterpillar shares are in a downfall today after topping $1,000 a share yesterday, closing at $1,022.28, up 3.7%, as the Dow’s best performer. Shares have rocketed better than 78% year to date, but are falling 2.6% in the early going.
Micron is scheduled to report earnings tomorrow. Wall Street is looking for another blockbuster report tied to revenues and earnings. However, investors will be listening for forward-looking guidance, which has typically driven post-earnings volatility and could further impact the tech sector.
Yesterday’s trading was a mixed bag as investors toggled between watching the markets and trying to keep up with the ongoing U.S./Iran peace. Reports of “encouraging process” in the talks may have helped to keep the markets from totally falling into the red.
The Dow managed to edge up 0.29%, thanks mostly to Caterpillar’s 4% move forward. The S&P slipped 0.37% while the Nasdaq took a deeper drop, losing 1.32% as many major tech shares fell back.
Also on the downside were shares of Amazon, off 4.8%, Microsoft, down 3% and Meta giving up 2.3%, all of which are falling again today.
SpaceX’s drop today follows yesterday’s 16% dive, marking its fourth straight days of declines after its explosive initial public offering fewer than two weeks ago. The downward moves are not totally unexpected as volatility is typical in the first weeks of trading after an IPO. At its closing price of $154.60, shares were still higher than the $135 a share IPO price, but 23% below the peak close of $201.80. Moreover, the space and AI conglomerate lost $600 billion in value over those three days, with another loss likely today.
Good trading!
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