Stan Choe
Wall Street is sharply lower in late trade with AI stocks again weighing on the market while escalating tensions in the Middle East are casting doubt on when United States and Iran can reach a deal to reopen the Strait of Hormuz to oil tankers.
The S&P 500 sank 0.9 per cent after bouncing between a modest gain and a loss of 1.3 per cent, and it’s heading toward its first back-to-back drop in three weeks. The Dow Jones was down 631 points, or 1.2 per cent, and the Nasdaq composite was 1.1 per cent lower.
The Australian sharemarket is set to retreat, with futures at 5am AEST pointing to a fall of 34 points, or 0.4 per cent, at the open. The ASX added 0.6 per cent on Wednesday. The Australian dollar is lower at US70.05¢.
The price for a barrel of Brent crude oil rose 3.1 per cent to $US94.30 after President Donald Trump warned Iran would “pay the price” for stalled negotiations between the two on their war.
Wall Street has been shaky since last week, when AI stocks went from roaring to records to suddenly turning lower. Among the worries is that their prices have simply shot too high, too fast because of AI mania. The question now is whether the break lower has cleared out excessive optimism that may have built into their stock prices, or if it’s just the start of a longer downturn.
Super Micro Computer, which sells AI servers, tumbled 20.3 per cent after saying late on Tuesday that it plans to raise $US7 billion ($10 billion) in cash by selling shares of stock and convertible preferred stock. Such moves raise the most money for companies when their stock prices are high, and they can dilute the ownership stakes of existing shareholders.
Micron Technology went from an early loss of nearly 4 per cent to a modest gain and back to a loss of 3.4 per cent. It’s coming off a wild stretch where it sank 7.7 per cent last Thursday, then plunged another 13.3 per cent Friday and rallied 9.9 per cent Monday. Despite all the swings, the computer memory maker’s stock is still up 216.9 per cent for the year so far.
Stocks of companies whose products and services help to make semiconductors had been the strongest forces pushing upward on the S&P 500 during the morning, but they trimmed their gains as the day progressed. KLA, for example, pared its early jump of 7.7 per cent to 1 per cent.
Some of the pressure on AI stocks could be coming from investors pulling cash out to prepare for high-profile debuts on the US stock exchange for several AI giants. SpaceX’s initial public offering could come later this week, for example.
The market’s swings came even as stocks got a bit of a boost from an update on US inflation that arrived before trading began.
While the report said inflation accelerated to its highest level in three years, the numbers were pretty much exactly what economists had forecast. The rise in an important underlying measure of inflation, meanwhile, was not as bad from April through May as economists expected.
That helped Treasury yields ease a bit in the bond market, which in turn relaxed some of the pressure that’s built up on the stock market.
High bond yields can slow entire economies and undercut prices for all kinds of investments, including stocks and cryptocurrencies. They hit investments seen as the most expensive in particular, and some critics are calling AI a bubble where investment inflated too far.
The yield on the 10-year Treasury was at 4.55 per cent, up from 4.53 per cent late Tuesday. The two-year Treasury yield, which more closely tracks expectations for what the Federal Reserve will do with its overnight interest rates, held steady at 4.13 per cent.
Traders have been building bets recently that the Fed will have to hike its main interest rate at least once this year, given how high inflation is and how strong the US job market remains. Wednesday’s inflation update caused them to trim their bets by a smidgen, according to data from CME Group.
In stock markets abroad, indexes in Europe pared their losses following sharper drops in Asia.
South Korea’s Kospi tumbled 4.5 per cent, hurt by losses for tech giants Samsung Electronics and SK Hynix.
Tokyo’s Nikkei 225 sank 1.9 per cent after data showed Japan’s producer price index, a measure for prices at the wholesale level, rose in May at the fastest pace in more than three years. Shares of technology and telecommunications giant SoftBank Group, which has a strong AI focus, lost 8.3 per cent.
AP
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