Black Day on Wall Street: Worst Trading Session Since 2022. What’s Going On?

Wall Street Plunges Triggering Global Stock Sell-Off

Wall Street experienced a dramatic plunge in stock markets, marking its worst session since 2022 and triggering a massive sell-off in Asia as well.
The Asian markets were particularly hit by the slump in global tech companies, leading investors to seek refuge in less risky assets such as short-term bonds, the Japanese yen, and the Swiss franc.

The Tech Sector Takes a Hit

The Nasdaq 100 index suffered a substantial loss of $1 trillion, raising concerns about when the significant investments in AI technology will pay off.
This decline was fueled by disappointing earnings reports from tech giants like Alphabet and Tesla, which eroded investor confidence in the already high valuations of the “Magnificent Seven” tech stocks.

Factors Behind the Market Turmoil

This market turmoil comes on the heels of a colder-than-expected inflation reading two weeks ago, which prompted a massive rotation from tech winners to companies that would benefit most from Federal Reserve rate cuts, particularly small-cap stocks.

Before the European markets opened, US futures showed signs of recovery amidst deep losses in tech stocks.
The sell-off was instigated by Alphabet’s earnings report on Tuesday evening, which failed to impress investors.
Alphabet’s shares plummeted over 5%, marking its worst performance since January.

Concerns and Uncertainty

The AI hardware manufacturers witnessed significant drops on Wednesday night after a stellar performance earlier in the year.
Companies like Super Micro Computer Inc., Nvidia, and Broadcom saw notable declines.
Even megacaps like Meta Platforms, Microsoft, and Apple experienced setbacks as the tech sell-off continued.

The sell-off resulted in a 5.9% drop in the Bloomberg index of the “Magnificent Seven,” falling below the 50-day moving average for the first time since May but still up 33% since the beginning of the year.
Market experts like Jim Covello from Goldman Sachs question the overly optimistic expectations surrounding AI.

Market Outlook and Global Factors

Market sentiment was also influenced by ongoing concerns about China’s growth trajectory, dismal PMI indices in Europe, and a bearish op-ed by former New York Fed member Bill Dudley.
The Japanese yen, a safe-haven currency, surged to a 2.5-month high, while the Swiss franc also saw gains overnight.

Short-dated bonds rallied overnight following comments from Bill Dudley suggesting a potential rate cut by the Federal Reserve at the upcoming policy meeting.
The uncertainty surrounding AI profitability and productivity in the short term has contributed to a sense of skepticism in the market, as highlighted by investment experts like Yung-Yu Ma.