AI Frenzy Sparks Tech Tumble: Nasdaq to End Its Winning Streak

In an unexpected turn of events for tech titans, the stock market is currently witnessing a broad retreat, fueled by concerns over AI-related capital expenditure. This week’s steep decline in U.S. indices could mark the end of a seven-week rally for Nasdaq.

Tech Selloff Driven by AI Valuation Concerns

The Nasdaq Composite has plunged by 362.04 points to 22,508.32, turning a promising week into a potential 0.6% loss, while the S&P 500 and Dow Jones have also nosedived but manage to cling to narrow weekly gains. According to FXEmpire, the fears of overvaluation and non-stop selling pressure in the technology sector are the primary engines of this downturn.

The Cards for Technology Companies

The affection for tech stocks is waning. As the Technology Select Sector SPDR ETF tumbles nearly 4% over two sessions, giants like Nvidia and AMD have faced sharp declines of 3%. Despite Applied Materials exceeding earnings estimates, its cautious revenue outlook has left investors seeking clearer pathways to growth.

Defensive Sectors: A Minimal Fortress

Defensive sectors such as Real Estate and Consumer Staples are providing a minimal buffer in these turbulent times, inching upward by scant percentages. In contrast, Financials, Industrials, Energy, and Utilities sectors have not avoided the downturn, each showing fractional losses.

The Ripple Effect on Bonds and Cryptocurrency

As apprehension continues to build, it ripples across other asset classes, notably cryptocurrency and bonds. Bitcoin’s value has slumped below $95,000, mirroring tech’s stumble. Concurrently, U.S. Treasury yields are dipping as investors flock to safe-haven assets, indicating an air of caution as the year-end approaches.

Fed’s Rate Cut Expectations Fizzling Out

Amidst this stock market downturn, expectations for a Federal Reserve rate cut in December have waned. Previously anticipated Fed moves are now overshadowed by entrenched inflation and the floating question mark over the real returns on extensive AI-driven capital expenditure.

The Road Ahead: A Bearish Outlook

Bearish sentiment is likely to persist as the year draws to a close. Tech’s fading leadership, combined with diminished Fed support, paints a grim picture unless the market sentiment makes a miraculous shift. With AI capex worries at the forefront and visibility muddled by recent government activities, the road ahead appears rugged and uncertain.