The Nasdaq 100 was driven towards a technical correction on Tuesday due to an accelerating selloff in chipmakers, which are heading for their worst month since 2002. This comes despite the S&P 500's equal-weighted version reaching record highs and the Dow Jones Industrial Average adding 1.2%. The chip selloff reflects growing skepticism about whether the vast investments poured into AI will justify the current lofty valuations of chipmakers, especially after the group's best-ever quarter.
This downturn in chip stocks is part of a broader market rotation, with investors shifting away from high-profile chipmakers towards more economically sensitive industries. Ulrike Hoffmann-Burchardi of UBS Chief Investment Office noted a constructive outlook on semiconductors due to robust AI demand but emphasized that there are broader opportunities for market gains beyond a narrow set of AI-linked stocks. Microsoft Corp. and Meta Platforms Inc. are expected to report earnings on Wednesday, followed by Apple Inc. and Amazon.com Inc. on Thursday, which will be crucial for market sentiment.
Contributing to the market's mixed performance was a significant drop in oil prices, with Brent crude sinking 5%, easing inflation worries and causing bond yields to fall. Treasuries rose for a third consecutive day, with swap traders reducing expectations of Federal Reserve rate hikes this year. Despite the chip rout, the broader market showed resilience, supported by strong growth in corporate profits, undemanding valuations, and a solid start to the earnings season from other sectors like Boeing Co. and Coca-Cola Co. However, the simultaneous selloffs in chipmakers and rallies in defensive shares significantly impacted quantitative trading strategies.
