JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- AI worries sting major indices
- Intel clocks it worst day since 1974
- Nvidia loses $5 trillion market cap
What a day, what a week! The market has been wrestling for months with the appeal of the potential productivity of artificial intelligence (AI) versus the economics of the billions of dollars invested to get there.
It’s been a tough match. As we noted at the start of earnings season, we expected results from AI-related tech companies to either solidify the AI spending story or keep investors questioning it. It looks like we might have an answer: The accountability needed to justify AI spending appears to be starting to come to roost.
This week’s tech selloff follows a heavy week of earnings from technology and semiconductor companies that disappointed investors, who appeared to move on to other sectors. All three major indices lost value, but ended Friday’s session off intraday lows. The tech-laden Nasdaq Composite wiped out 2.86% and the S&P 500 Index gave back 1.82%. A few tech stocks on the Dow Jones Industrial Average weighed on the index, down 1.09%. In all, the tech selloff erased more than $1 trillion in value.
The Cboe® Volatility Index (VIX® Index) sent a warning signal, nearing 24 in intraday trading. Anything above 20 is considered cautious. By the session’s end, the VIX® Index was 12.91% higher, but measuring just below 20.
Among the biggest decliners were Intel shares, down 28.5%, marking its worst intraday decline since 1974, according to CNBC. SanDisk lost 13.8%, Micron dropped 5.3% and Marvell backtracked by 10%. Nvidia fell by 4.2% and lost its $5 trillion market capitalization in the process.
But let’s be clear. This week’s selloff doesn’t mean the AI technology boom is ending or the demand is fading. It appears to signal that Wall Street is shifting how it balances spending with still-uncertain returns. And, here’s the thing, no one has an answer.
The fallout was meaningful, but it wasn’t an across-the-board slump. On the S&P 500 Index, financials, healthcare and energy sectors all ended solidly in the green as investors turned to those defensive stocks. The healthcare sector climbed to a 52-week high after pharmaceutical and biotechnology companies reported strong earnings.
Investors also moved into Treasury bonds, considered a safe haven amid market volatility. Yields dropped as prices rose. The 10-year yield fell to 4.92%, while the 30-year fell to 5.31%.
Other issues also impacted trading today. Crude oil prices reversed earlier-week pullbacks to end the session higher. WTI Crude climbed above $104 per barrel, up 2.2%, while Brent rose 2.45% to just below $118 a barrel as security risks escalated in the Middle East and reports of threats of more conflict after next week’s midterm elections surfaced.
The good news is the week is over, and we have the weekend to see whether cooler heads prevail. Monday’s trading could paint a whole different picture: The bottom pickers have come in on every down mover over the last 10 years. Will it happen again?
Earnings on the calendar next week should give us more insight into the tech selloff as well as strength in healthcare, energy and consumer spending. Here’s the lineup we’ll be watching: Apple reporting on Monday; Advanced Micro Devices, Amgen and Pfizer on Tuesday; McDonald’s and Qualcomm on Wednesday; and ConocoPhillips on Thursday.
Happy Trading!
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