Stocks Slide as Artificial Intelligence Frenzy Eases

Stocks Slide as Artificial Intelligence Frenzy Eases

The S&P 500 Index SPY today is down -1.04%, the Dow Jones Industrial Average DIA is up +0.01%, and the Nasdaq 100 Index QQQ is down -2.67%. September E-mini S&P futures (ESU26) are down -1.00%, and September E-mini Nasdaq futures (NQU26) are down -2.66%.

Stock indexes are falling sharply today, with the S&P 500 posting a 1.5-week low and the Dow Jones Industrial Average and the Nasdaq 100 posting 1-week lows. Concerns over the high valuations of chipmakers and memory stocks, among the biggest beneficiaries of the artificial-intelligence trade, have led to global selling in those sectors today as investors question whether future returns can justify current spending on AI. Today’s +5% jump in International Business machines is limiting losses in the Dow Jones Industrials.

Today’s stock slump began in Asia, with Japan’s Nikkei Stock Average falling by more than -3%. Also, South Korea’s Kospi index closed down more than -10%, as foreign investors offloaded more than $2.5 billion of Kospi shares. South Korea’s SK Hynix and Samsung Electronics closed down by more than -12%, sparking forced liquidation that hit retail investors trading on margin, compounded by a wave of selling tied to leveraged exchange-traded funds (ETFs) tracking the two chip giants.

Stock indexes recovered from their worst levels today on signs of strength in the US economy, after the Jun S&P manufacturing PMI unexpectedly rose by +0.6 to 55.7, stronger than expectations of a decline to 54.6 and the strongest figure in 4 years.

On the negative side, the US Jun Richmond Fed manufacturing survey current conditions fell -9 to 4, weaker than expectations of 8.

The markets are discounting a 36% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.

Overseas stock markets are sharply lower today. The Euro Stoxx 50 fell to a 1-week low and is down -0.93%. China's Shanghai Composite fell from a 1-month high and closed down -1.37%. Japan’s Nikkei-225 Stock Average closed down -3.55%.

September 10-year T-notes (ZNU6) today are up +7 ticks, and the 10-year T-note yield is down -2.4 bp to 4.485%. T-notes are climbing as today’s sharp selloff in global equity markets has fueled safe-haven demand for government debt securities. Also, easing inflation expectations are supportive of T-notes, as the 10-year breakeven inflation rate fell to a 6-month low of 2.210% today.

Gains in T-notes are limited after the Jun S&P manufacturing PMI unexpectedly expanded at the strongest pace in four years, a hawkish factor for Fed policy. Also, supply pressures are negative for T-notes as the Treasury will auction $69 billion of 2-year T-notes later today.

European government bond yields are moving lower today. The 10-year German bund yield dropped to a 2.5-month low of 2.904% and is down -4.2 bp to 2.910%. The 10-year UK gilt yield is down -5.6 bp to 4.752%.

The Eurozone Jun S&P manufacturing PMI fell -0.3 to 51.3, weaker than expectations of no change at 51.6. However, the Jun S&P composite PMI rose +1.0 to 49.5, stronger than expectations of 49.2.

Eurozone May new car registrations rose +3.2% y/y to 955,000 units, the fourth consecutive monthly increase.

ECB Chief Economist Philip Lane said ECB Officials face the risk that inflation will hover above their goal "for quite some time."

The UK Jun SP manufacturing PMI fell -0.8 to 53.1, weaker than expectations of 53.5.

Swaps are discounting a 10% chance of a +25 bp ECB rate hike at its next policy meeting on July 23.

Chipmakers and AI-infrastructure stocks are sharply lower, driving today’s selloff in equity markets. The iShares Semiconductor ETF SOXX is down more than -7%. Sandisk SNDK is down more than -11% to lead the S&P 500 and Nasdaq 100 losers, and Micron Technology MU, ON Semiconductor ON, Applied Materials AMAT, Lam Research LRCX, KLA Corp KLAC, Western Digital WDC, and Qualcomm QCOM are down more than -9%. Also, Marvell Technology MRVL and ARM Holdings NV ARM are down more than -8%, and ASML Holding NV ASML, Seagate Technology Holdings Plc STX, Microchip Technology MCHP, Analog Devices ADI, NXP Semiconductors NV NXPI, and Texas Instruments TXN are down more than -7%. In addition, Advanced Micro Devices AMD is down more than -5%, and Intel INTC is down more than -3%.

Mining stocks are under pressure today, with gold and silver falling sharply to 1.5-week lows. Coeur Mining CDE and Freeport McMoRan FCX are down more than -6%, and Southern Copper SCCO and Hecla Mining HL are down more than -5%. Also, Newmont Corp NEM, Barrick Mining B, and Anglogold Ashanti AU are down more than -3%.

Primoris Services PRIM is down more than -26% after cutting its full-year profit outlook to $2.05 to $2.60 from a previous estimate of $4.80 to $5.00, well below the consensus of $4.74.

Best Buy BBY is down more than -3% after announcing that CFO Bilunas will step down at the end of July after 20 years, including seven years as CFO.

Nike NKE is down more than -1% after Evercore ISI downgraded the stock to inline from outperform.

Edgewell Personal Care Co EPC is up more than +14% after rejecting an unsolicited takeover offer from Yellow Wood Partners, saying the $30 a share offer is too low.

CDW Corp CDW is up more than +5% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $170.

International Business Machines IBM is up more than +5% to lead gainers in the Dow Jones industrials after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $291.

Avis Budget Group CAR is up more than +4% after entering into a settlement agreement with Pentwater Capital Management, which will pay Avis $650 million to resolve a lawsuit seeking recovery of short-swing profits.

GE HealthCare Technologies GEHC is up more than +3% after RBC Capital Markets initiated coverage on the stock with an outperform rating and a price target of $80.

Target TGT is up more than +3% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $162.

Carnival Corp Ltd (CCL), FedEx Corp (FDX), Hub Group Inc (HUBG), KB Home (KBH), Korn Ferry (KFY), Replimune Group Inc (REPL), Worthington Enterprises Inc (WOR), XCF Global Inc (SAFX).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.For more information please view the Barchart Disclosure Policy here.