US Stocks Slide as Big Tech Sell-Off Continues Amid AI Investment Concerns
US stocks struggled to regain momentum as the Nasdaq Composite and S&P 500 continued their decline, following Wall Street’s recent sell-off of Big Tech stocks. The Nasdaq Composite (^IXIC), which fluctuated throughout the trading day, closed down approximately 0.9%. This marked the index’s worst performance since October 2022. The S&P 500 (^GSPC) fell by 0.5%, while the Dow Jones Industrial Average (^DJI) was the sole major index to show a modest gain of 0.2%.
Tech Sector’s AI Investments Under Scrutiny
Stocks have faced resistance as Wall Street begins to question the returns on tech companies’ significant investments in artificial intelligence (AI). Disappointing earnings reports from Alphabet (GOOGL, GOOG) and Tesla (TSLA) earlier in the week have raised doubts about whether Big Tech can justify their inflated valuations driven by AI hype. Additionally, there is growing concern about the strength of the US economy, as recent earnings misses from high-profile companies cast uncertainty on consumer resilience amidst historically high borrowing costs.
Federal Reserve Interest Rate Expectations Shift
In response to these economic and earnings concerns, traders are now anticipating more substantial cuts by the Federal Reserve. Market expectations suggest a reduction of around 30 basis points by September, with nearly 70 basis points anticipated throughout 2024. There is also an increased likelihood of an earlier-than-expected rate cut in July, according to CME FedWatch data.
US Economic Growth Outpaces Expectations
Despite the market volatility, an advance estimate revealed that the US economy grew at an annualized rate of 2.8% during the second quarter, surpassing the 2% growth forecasted by economists surveyed by Bloomberg.
Upcoming Data Point for Federal Reserve
The Personal Consumption Expenditure (PCE) Price Index update for July, scheduled for release on Friday, will provide the Federal Reserve with additional data to inform its decision on rate cut timing. The PCE Price Index is a critical measure of inflation, and its update will be closely watched by investors and policymakers alike.
FAQs: US Stocks and Federal Reserve Expectations
What caused the recent decline in US stocks?
The recent decline in US stocks was driven by a continued sell-off in Big Tech stocks, fueled by concerns over the effectiveness of massive investments in artificial intelligence (AI). Disappointing earnings reports from major tech companies like Alphabet and Tesla have exacerbated these concerns. Additionally, doubts about the robustness of the US economy and high borrowing costs have also contributed to the market’s struggles.
How did the major stock indices perform on Thursday?
On Thursday, the Nasdaq Composite (^IXIC) fell by approximately 0.9%, marking its worst performance since October 2022. The S&P 500 (^GSPC) decreased by 0.5%. The Dow Jones Industrial Average (^DJI) was the only major index to show a gain, albeit modest, rising by 0.2%.
What are the current expectations for Federal Reserve interest rate cuts?
Traders are currently expecting significant Federal Reserve interest rate cuts. Market expectations indicate a potential reduction of around 30 basis points by September and nearly 70 basis points throughout 2024. There is also an increased likelihood of an earlier-than-expected rate cut in July, according to CME FedWatch data.
What impact could the Personal Consumption Expenditure (PCE) Price Index update have?
The upcoming update of the Personal Consumption Expenditure (PCE) Price Index for July will provide additional insights into inflation. This data is crucial for the Federal Reserve as it makes decisions regarding interest rates. The PCE Price Index is a key measure of inflation, and its results could influence future monetary policy actions.
How did the US economy perform in the second quarter?
The US economy grew at an annualized rate of 2.8% in the second quarter, according to the advance estimate. This growth rate was higher than the 2% growth anticipated by economists surveyed by Bloomberg.
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