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Stocks on Wall Street plunged on Thursday, dragged down by a sell-off in technology shares as disappointing earnings led traders to worry that the sector’s months-long rally may have been overdone, sending Asian shares tumbling.
Tokyo’s Nikkei led stock market losses as a stronger yen added downward pressure on exporters, while the region’s tech giants struggled.
Global stock markets have been on a tear this year, with all three major New York indexes hitting multiple record highs, as interest in artificial intelligence-related fields has surged, sending tech giants such as Alphabet and chipmakers like Nvidia and TSMC soaring.
Big profits and an optimistic outlook have driven the stock market higher, with investors fearing missing out and rushing to plow more cash.
Yet analysts have been warning of a pullback as valuations have been pushed to dizzying heights, and earnings from Tesla and Google parent Alphabet on Tuesday offer a selling opportunity.
Tesla said second-quarter profit fell 45% due to price cuts and heavy investments in artificial intelligence, and while Alphabet’s results beat expectations, YouTube’s results were less optimistic.
The two companies are among the so-called “Big Seven” and have been key to driving the market higher this year. Tesla fell 12.3% and Alphabet fell 5%.
All three major Wall Street indices fell sharply, with the Nasdaq falling more than 3% and the S&P 500 falling more than 2%, marking their biggest one-day drop since December 2022.
“Investors now face a pressing question: How long will it take for hyperscalers to start generating outsized returns on investment?” asked analyst Stephen Innes.
He added in his Dark Side of the Boom newsletter: “Patience is becoming the new standard-bearer for recent tech shareholders as they wait for those tech investments to pay off.”
Asia followed suit, with technology companies among the biggest losers – SK Hynix in Seoul fell more than 8% at one point despite strong earnings, while Sony in Tokyo fell more than 4% and SoftBank fell more than 7%.
Stocks in Hong Kong and Shanghai fell despite a surprise cut in China’s central bank’s benchmark interest rate.
Sydney, Seoul, Singapore, Wellington, Manila and Jakarta also suffered significant losses.
Tokyo’s Nikkei index fell more than 3% at one point.
“A decline in U.S. technology shares – especially a plunge in Tesla shares, and disappointing earnings from Alphabet – and a stronger yen weighed on the market,” SBI Securities senior analyst Hideyuki Suzuki told AFP.
He said the electric vehicle sales boom was slowing and “overinflated expectations for artificial intelligence and other technologies are being corrected.”
However, he added that “economic fundamentals have not deteriorated, so stocks may rebound after the Japanese and U.S. central bank meetings.”
“The yen was higher on speculation that the Bank of Japan may raise interest rates at its meeting next week,” but views were divided, Suzuki said.
The yen extended its gains against the dollar in recent weeks, having fallen to a near four-decade low around 162 earlier this month.
The yen rose as high as 152.65 against the dollar, and Ines said that ahead of the meeting, “traders seem to have switched from closing short yen positions to long yen positions.”
Market watchers are divided over whether the Bank of Japan will raise interest rates again as it looks to normalize its long-standing ultra-loose monetary policy.
– Key data around 02:30 GMT –
Tokyo – Nikkei 225: Down 2.5% to 38,165.19 (close)
Hong Kong – Hang Seng Index: Down 1.5% to 17,058.26
Shanghai Composite Index: Down 0.9% to 2,875.61
EUR/USD: Down to $1.0839 from $1.0842 on Wednesday
GBP/USD: Down from $1.2905 to $1.2890
USD/JPY: Down from 153.99 yen to 152.89 yen
Euro/pound: Up to 84.09 pence, up to 84.08 pence
West Texas Intermediate crude: Down 0.4% to $77.30 a barrel
Brent North Sea crude: Down 0.4% to $81.40 a barrel
New York – Dow Jones Industrial Average: Down 1.3% to 39,853.87 (close)
London – FTSE 100: down 0.2% at 8,153.69 (close)
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