Tech Giants Suffer Historic Selloff Nasdaq Sees Major Decline

A selloff in the stock market intensified on Wednesday of billions of dollars in value from the Magnificent Seven tech giants. The Nasdaq Composite experienced its first 3% or greater decline in 400 trading days, underscoring a dramatic shift in market sentiment.

AI Enthusiasm Fades

Following a surge in stock prices earlier this year driven by excitement over artificial intelligence, investor confidence has recently faltered. Skepticism about AI investments was particularly evident in Tesla’s case. A postponed robotaxi rollout contributed to a 12% drop in Tesla’s shares, which had a broad impact on the technology sector.

Investor confidence has waned due to skepticism over AI, with Tesla’s postponed robotaxi rollout highlighting concerns, according to wsj login.

Indices Plunge S&P 500 and Dow Jones Decline

The S&P 500 fell by 2.3%, its worst day since December 2022. The Dow Jones dropped by 1.2%, or 504 points. The Nasdaq, with many tech giants stocks, declined by 3.6%. This was its biggest drop since October 2022. At that time, the Federal Reserve raised interest rates to fight inflation.

Disappointing Earnings Reports

Disappointing earnings reports from Tesla and Alphabet sparked concerns over AI spending. This led to a $768 billion loss. The Magnificent Seven experienced their largest decline on record. This decline is notable since Meta Platforms’ 2012 IPO. Alphabet’s earnings slightly exceeded estimates, but raised AI investment concerns. High expectations for tech giants were highlighted by these worries.

Shifting Investor Sentiment

David Lundgren of Little Harbor Advisors stressed that companies must surpass, not just meet, earnings estimates. This shift impacted AI supply chain stocks. Super Micro Computer fell by 9.2%. Broadcom decreased by 7.6%. Qualcomm and Advanced Micro Devices saw declines over 6%. The sentiment shift significantly affected these technology stocks.

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Sector Performance A Mixed Picture

The dominance of tech firms had shielded broader indices from underperformance in other sectors. On Wednesday, however, the S&P 500’s utilities, consumer staples, health-care, and energy sectors all ended in positive territory. Notably, defense contractor Lockheed Martin rose 2.8%, reaching an all-time high, while Visa’s shares dropped 4% after reporting quarterly revenue growth below analysts’ forecasts.

Smaller Firms and Market Rotation

As tech stocks have struggled, investors have increasingly turned to small and midsize companies. The Russell 2000 index fell by 2.1% on Wednesday but has outperformed the S&P 500 by 10.9% over the past 11 trading sessions, marking the largest margin in over 24 years. Analysts believe smaller firms could benefit from anticipated rate cuts due to their sensitivity to rising rates.

Commodity Markets and Future Outlook

In commodity markets, oil prices increased by 0.8%, closing at $77.59 a barrel after hitting their lowest level since early June. Copper futures, which had risen on predictions of an AI-driven data-center boom, fell for the eighth consecutive day. Investors will be watching earnings reports from Northrop Grumman, Honeywell International, and Norfolk Southern on Thursday, with Colgate-Palmolive, Bristol Myers Squibb, and 3M reporting on Friday.

Anticipated Volatility

Many traders anticipate further volatility. The CBOE Market Volatility Index, known as Wall Street’s fear gauge, saw its sharpest increase since 2022 on Wednesday, signaling ongoing uncertainty in the markets.

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