Tech stocks drive market selloff: where next for the NASDAQ price?
Thursday saw a renewed slump in global stocks, as poor earnings, weak economic data and fears of a wider Middle East conflict drove a risk-off move.
US stocks decline amid tech sell-off
Wall Street experienced a sharp decline on Thursday, with technology stocks leading the downturn. The tech-heavy NASDAQ 100 Composite closed 2.3% lower, while the broader S&P 500 fell 1.4%. The Philadelphia Semiconductor index, tracking 30 stocks in the sector, suffered its worst day since 2020 with a 7.1% loss.
The cause was mostly attributed to very poor earnings from Intel, which missed expectations, suspended its dividend and also announced a broad programme of redundancies among its workforce.
While Amazon earnings beat forecasts, it missed on revenue, issued a weaker forecast for coming quarters, and also reported a rise in infrastructure investments, fuelling investor concerns that the artificial intelligence (AI) boom is pushing companies into making large spending plans that will not pay off in the longer-term.
The Asian session added to the gloomy situation. The Nikkei 225 fell over 5% thanks to a strengthening Japanese yen, while other indices in the region also fell.
Treasury yields sink to six-month low
In contrast to the stock market's performance, Treasury bonds rallied significantly. The benchmark 10-year Treasury yield dropped below 4% for the first time in six months, falling 0.12 percentage points to 3.98%. Two-year yields, which closely track interest rate expectations, decreased by 0.18 percentage points to 4.15%.
Economic data fuels investor concern
The dramatic shifts in both stocks and bonds were largely attributed to weak economic data released on Thursday. New applications for unemployment aid reached their highest level since last August, while manufacturing data showed a fourth consecutive month of contraction. These indicators suggested a slowdown in the US labour market and broader economy.
Federal Reserve signals potential rate cuts
The market movements also followed the Federal Reserve's (Fed) decision to maintain interest rates at their 23-year high. However, Fed Chair Jerome Powell hinted at the possibility of lowering borrowing costs as soon as next month. Investors are now pricing in expectations of three quarter-point rate cuts by the end of the year, with some even considering the possibility of a half-point cut.
The ISM data yesterday showed particular weakness, and if today’s Non-farm payrolls (NFP) also come in weaker than expected it could see further selling of equities due to fear of a broader economic contraction. This could then push the Fed towards more aggressive easing in the months to come.
Geopolitical factors contribute to bond rally
Analysts noted that escalating tensions in the Middle East have further boosted demand for Treasury bonds, which are considered a safe-haven asset for investors during times of uncertainty.
An Iranian response to Israel’s assassination of Hamas’ leader is now expected. A number of airlines have cancelled their flights to the region, affecting airline stocks. The last Iranian attack on Israel lasted one day, but a wider attack could lead to more escalation and a bigger Israeli response.
Differing market interpretations
While bonds benefited from the weak economic news, stocks reacted negatively to the same information. Some analysts suggest that the market may be overreacting to the economic data, given the Fed's cautious stance on rate cuts.
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