U.S. Tech Stocks Tumble as AI Rally Pauses, Impacting Global Markets

U.S. stocks tumble, investors pause AI rally

(Reuters) - Wall Street's main indexes slid on Tuesday, with the S&P 500 down more than 2% and the Nasdaq Composite down over 3% as investors softened their optimism about AI in a broad market sell-off following tepid economic data. The benchmark S&P 500 index, Nasdaq and Dow are on track for their biggest daily declines since early August. Shares of chip stocks were hard hit, with AI heavyweight Nvidia tumbling nearly 10% and Wall Street's chip index the PHLX chip index slumping 8%. TODD SOHN, ETF STRATEGIST, STRATEGAS LLC, NEW YORK: "Such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed. Since the Fed paused rate increases a year ago, more than $30 billion has flowed into U.S. technology-related ETFs; meanwhile all other sector ETFs lost $10 billion in the same time period. Tactical allocations go into those sector ETFs, and imbalances like this can persist for a while, but eventually, the steam runs out of the trade. "Then there are the earnings - it's also hard to keep beating those high expectations. Plus, now we have Broadcom's results due Thursday. And if you put ten people in a room and asked them why this is happening, at least one would point to the election and the possibility that a new administration would do something to tariffs that would affect chips. "Finally, while it wouldn't be at the top of my list, there's the calendar. People may have woken up this morning and realized it's September, which historically is not a great month for stocks. Add to that the fact that so far this year the largest drawdown we've seen in the S&P 500 is about 8%, and that typically we'd see something around 14%, people are nervous." STEVE SOSNICK, MARKET STRATEGIST, INTERACTIVE BROKERS, GREENWICH, CT. "There's a bit of a post-Nvidia earnings hangover going on today. Those earnings last week were fine; they exceeded expectations. But the magnitude of the beats is shrinking quarter by quarter and that's not lost on investors. The stock had rallied going into earnings - a huge amount of investment poured into it - and so it wasn't just sufficient to be good, it had to be great. And Friday's rally took place in remarkably light volume ahead of a long weekend that happened to coincide with the end of the month, so the typical markup that happens at the end of a calendar month met no resistance. "This week is different, and so you've seen a nasty day. There's concern about what the job numbers are going to show, about seasonality. That's why the VIX is higher. I don't think the ISM number, showing a weaker manufacturing sector but higher prices, was at all helpful. And there you have it. Gravity." DENNIS DICK, TRADER AT TRIPLE D TRADING: "If you look at the action on Friday, everything was rallying, but Nvidia was lagging. So, you could see the relative strength was poor after their earnings print. It hasn't been good since then." "September is seasonally a very weak month of the year, so I think people are nervous. People are just using this as an excuse to take profits and the most likely candidates to take profits are the semis, because they've been the strongest." STEPHEN MASSOCCA, SENIOR VICE PRESIDENT, WEDBUSH SECURITIES, SAN FRANCISCO: "We ran right back up to the new high again. There was absolutely zero news over the weekend that meant anything to anybody. But here we are down 600 points." "They're expensive. They're not cheap stocks. I mean, wow, I don't know what Nvidia needed to do in the quarter... It was a pretty freaking good quarter, a couple minor issues, but it just goes to show you these things are just very expensive. "It also becomes a little bit of a self-fulfilling prophecy because so much money now flows into ETFs and so much money flows into S&P and target funds and all that. It just gets spread across the market and it gets spread across the market on a market cap weighted basis, so it sort of becomes a self-fulfilling prophecy. If you're one of the top market cap names in the S&P 500 and all the money is pouring into S&P 500 ETFs funds, how does that not help you? And I think that's part of it, and that's part of why you get these stretched valuations." BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, BROOKFIELD, WI "People are worrying and thinking about all kinds of macro issues. Has the Fed fumbled the ball? The fear is that it is tripping over its own feet when it comes to the timing and pace of rate cuts instead of sticking the landing. Will the jobs report increase the odds of a recession? The biggest thing here is the possibility that investors will sell what has gone up the most in the face of any softening." SCOTT WREN, SENIOR GLOBAL MARKET STRATEGIST AT WELLS FARGO INVESTMENT INSTITUTE "We came in with the futures down but once this ISM number came out it triggered this fall." "The market is worried about how drastic the slowdown is going to be. The tech sector, even with this pullback we've had today, it's still up a lot for the year and these things have moved a lot. These stocks led the chart up and on down days they will lead the chart down. When you look at something like 2/10 inversions the last 8 recessions curve has gone positive before recession occurs and we're only a few basis points away. The market is thinking about that too." MICHAEL GREEN, PORTFOLIO MANAGER, SIMPLIFY, SAN FRANCISCO BAY AREA "People are over allocated to Nvidia and many of these names and they're trying to reduce that exposure. It just has the potential for these things to sell off quite significantly" "I also think there is a derisking related to election as the election season officially starts now when people are back from Labor Day and everybody is off the beach. Everybody looked at their portfolios and said that going into the political uncertainty of a tight election, we want to have less risk. The PMI report was an excuse for that." CALLIE COX, CHIEF MARKET STRATEGIST, RITHOLTZ WEALTH MANAGEMENT, NEW YORK "Stocks are starting the fall off on a sour note, yet it's hard to say exactly why people are selling today. Tech is dragging the index down, with Nvidia accounting for about a third of the S&P 500's losses. We saw a manufacturing report come out this morning that suggests goods demand is slowing. But it wasn't shockingly bad data, and the narrative of slowing demand isn't exactly surprising. "I'd pin some of the drop on seasonality. September is typically a rough month of the year for the stock market - and the S&P 500 has fallen on the Tuesday after Labor Day every year since 2016. People may simply just be catching up to what they missed during the dog days of summer. "Believe in this bull market, but shield yourself against rash decisions in what could be a turbulent fall. And don't get distracted by short-term market swings. Since 1950, 60% of market selloffs haven't reached correction territory, and 26% have ended before the dreaded bear market level." (Reporting by Suzanne McGee, Noel Randewich, Chuck Mikolajczak, Chibuike Oguh, David Randall, Laura Matthews and Carolina Mandl; Compiled by Megan Davies)

European Midday Briefing : Europe Hit by U.S. Tech Selloff, Growth Doubts

European stocks tumbled on Wednesday as investors were unnerved by Nvidia's slump and a broader market selloff on Wall Street and renewed fears of an economic slowdown. Investors will now shift attention to Friday's monthly jobs report in the U.S., a key dataset that could influence expectations around the pace and scale of the Federal Reserve's interest-rate cuts. Concerns that the AI industry boom is slowing may also be in play, analysts said. Morningstar said markets may be interpreting remarks from Nvidia's chief executive in a media report as signaling that demand for its AI equipment has peaked. Despite the Nvidia selloff, Wedbush remains bullish on the stock, calling it "the new oil and gold in the IT landscape." Tech spending on AI has only just started rippling across the sector, it said. "The stage is set for tech stocks to move higher into year-end and 2025," as the Fed kicks off its rate-cutting cycle and a "soft landing" for the U.S. economy remains on track. Tech stocks in Europe were lower, with ASML down 5%. UBS said the chip company could grow less than expected in the coming years as demand for artificial intelligence will only account for a small part of revenue and China sales will decline, as it downgraded the stock to neutral from buy. Stocks to Watch Sandoz is ready to invest to tap into opportunities it sees in the market for generic GLP-1 drugs, RBC Capital Markets said, referring to the class of drugs behind blockbuster obesity injections developed by Novo Nordisk and Eli Lilly. Sandoz will target semaglutide--the active ingredient in Novo Nordisk's Wegovy and Ozempic for weight-loss and diabetes--in early markets Canada, Mexico and Brazil from 2026, explore it in major markets such as the U.S. and the EU across 2031-35 and target tirzepatide--the ingredient in Eli Lilly's Mounjaro and Zepbound--from 2035 onward, RBC said. Stellantis has fallen from grace and must prove to investors it can turn things around, Bernstein said, adding that the share price reflects disappointment around once-great inventory management and price discipline. Bernstein has lowered its FY24-26 adjusted margin forecast to 10% from 10.5%. However, Bernstein expects upside given the carmaker's cash returns and has hope for its ability to navigate competition and the EV transition. U.S. Markets: Investors remained nervous after Tuesday's stock-market selloff, with benchmark stock futures and bond yields down. Wednesday's calendar includres JOLTS jobs data along with earnings from Hewlett Packard Enterprise, Dick's Sporting Goods and Dollar Tree. This week's big focus remains the monthly jobs report. Forex: The dollar was lower ahead of U.S. jobs data that could alter interest-rate cut expectations for the Federal Reserve. The jobs opening and turnover survey will be released at 1400 GMT, followed by ADP private payrolls data on Thursday and the nonfarm payrolls report on Friday. The dollar could see "a bit of a back and forth" on Wednesday and Thursday but "hardly anyone will stick one's neck out and position significantly for one side or the other, since Friday's report will be decisive," Commerzbank said. August payrolls data are particularly important after July's report sparked speculation for more aggressive rate cuts, it added. Bonds: Tuesday's Treasury gains were led by long-end bonds, though were likely somewhat contained by a flood of new corporate issuance, Pepperstone said. "While haven demand could see these gains extend, were it to continue into coming sessions, a renewed front-end sell-off, and round of curve steepening should come to fruition as and when the market comes to reprice the Federal Reserve outlook in a hawkish direction." Current expectations for 100 basis points of Fed rate cuts that money markets price in by year-end are still over-the-top, Pepperstone said. Energy: Oil prices extended the previous session's losses, reaching their weakest levels this year on fears of an oversupplied market and following a report that Libya might soon restart production. Expectations that OPEC+ will stick to its plan to gradually increase output and concerns over demand after the latest Chinese PMI data have weighed haevily on market sentiment. Meanwhile, Libya's central bank governor said there are strong indications that political factions in the country are nearing an agreement, according to a Bloomberg report. "This triggered a wave of selling," ANZ Research said, noting that a deal would pave the way for more than 500,000 barrels a day of oil to return to the market and bring the focus back to a tepid demand backdrop. ING said this week's oil-price slump adds further pressure on OPEC+'s plans to unwind some of its production curbs. "With the balance looking soft through 2025, the question is when the group will eventually be able to bring supply back onto the market without putting significant pressure on prices," ING said. European natural-gas prices fell further as the market shrugs off concerns over supply disruptions amid high inventories and weak demand. Gas flows between Russia and Europe have remained broadly stable despite intense fighting with Ukraine causing damage to energy infrastructure, while maintenance works in Norway are expected to end soon, according to ANZ Research. "That has given comfort to traders that the market will remain well supplied, underpinned by underground storage facilities that are over 92% full. Demand also remains weak, with the industrial sector showing no signs of improvement." Metals: Gold futures slipped further and failing to act like a traditional safe-haven during Tuesday's market slump, XTB said. A mixture of fears around global growth, a commodity market selloff filtering through to stocks, shifting monetary policy cycles and seasonal market patterns have come together to drive the wider slump, XTB added. While the precious metal has outperformed every other commodity during the wider fall, it is still 1.5% lower on-week, which suggests the market isn't in panic mode and flocking to safe havens yet. There have also been large inflows into government bonds, which suggests investors believe the Federal Reserve has the market's back, XTB said. Base metals were also lower, giving away the gains made in recent weeks. Copper has led the decline among the wider metals complex--falling 5.1% in the last week--after bearish forecasts from analysts citing shrinking Chinese demand, Sucden Financial said. This prompted the metal to correct below the previously robust $9,000 a ton mark. "While we do see confidence in Chinese recovery soften, the longer-term outlook remains in the supply/demand deficit, which should help maintain the robust support level at $8,700 a ton intact." EMEA HEADLINES For Volkswagen, the Bumpy Road to Electric Vehicles Starts to Hit Home Volkswagen's suggestion that it might have to close a plant in Germany for the first time ever sets up a battle with its powerful union and highlights the mounting pressures on its namesake brand. The carmaker's bosses raised the prospect of a plant closure on Monday as it navigates an increasingly bumpy transition toward electric vehicles. The company said a "performance program" at its core Volkswagen brand that was agreed upon with union leaders last December would no longer be sufficient to hit profit targets, following a disappointing first half of the year. German Government to Begin Exit From Commerzbank Germany plans to reduce a stake it built in Commerzbank during the financial crisis of 2008 currently valued at about 2.56 billion euros ($2.83 billion), the latest move by a European government to exit crisis-era bailouts. The German government took a stake in the lender in 2008 and 2009 in a bid to protect financial stability. The government now wants to begin a process to exit its shareholding in Commerzbank, which currently stands at 16.49%, after an improvement in the bank's financial situation, the German finance agency said late Tuesday. Telia to Cut Around 15% of Workforce in Cost-Cutting Shake-Up Telia Co. plans to cut 3,000 jobs across its business this year as part of a restructuring plan aimed at simplifying operations and cutting costs. The Swedish telecommunications operator said Wednesday that it aims to implement a new operating model that will help it become a more customer-focused organization. GLOBAL NEWS Asian Chip Stocks Stumble as Recession Fears Resurface, Nvidia Slides Asian chip stocks took a hit on Wednesday as markets were unnerved by artificial-intelligence chip giant Nvidia's slump overnight and renewed fears of an economic slowdown. Shares of Nvidia slid 9.5% on Wall Street on Tuesday amid a broader market selloff, erasing $278.9 billion from the company's market value. That was the biggest one-day market cap decline on record for any U.S. company, according to Dow Jones Market Data. China Caixin PMI Signals Slower Growth in Services Sector A private gauge of China's service activity expanded at a slower clip in August, as Beijing continues to strive to stimulate domestic demand. The Caixin services purchasing managers index dropped to 51.6 in August from 52.1 in July, said Caixin Media Co. and S&P Global on Wednesday. How China's Economic Woes Are Dragging Down U.S. Companies For years, global companies showcased their Chinese operations as a source of robust growth. A burgeoning middle class, a stream of people moving to cities, and the creation of new services to cater to them-along with the promise of the further opening of the world's second-largest economy-drew companies eager to tap into the action.