Asian stocks, along with US equity-index futures, are poised for declines as the enthusiasm for artificial intelligence (AI) investments, which previously propelled markets to record highs this year, begins to cool. This comes after Broadcom Inc.'s AI-chip sales outlook fell short of elevated expectations, triggering a significant retreat in semiconductor shares. The Nasdaq 100 Index, for instance, has seen futures contracts drop by 1.3%, indicating a third consecutive day of losses as investors rotate out of technology and chip stocks. Chipmakers collectively tumbled 10%, and the Nasdaq 100 sank approximately 5%, marking its largest drop since April 2025.
South Korea, which had been the world's best-performing gauge this year and a bellwether for AI investments, experienced a substantial drop of 6.5%, contributing to MSCI's regional equity gauge declining 2.1%. The broader S&P 500 index also saw a decline amidst growing anxiety about valuations, particularly following a swoon in AI shares that had led this year's surge from market lows. Technology heavyweights like NVIDIA and Microsoft saw their shares retreat, prompting fund managers to shift into defensive staples and financials, with some increasing exposure to gold and base-metal producers.
Investors are now closely monitoring the US jobs report, slated for release on Friday, which is expected to show an 85,000 increase in nonfarm payrolls and an unchanged 4.3% unemployment rate. This data is crucial as it could reshape expectations for Federal Reserve policy, potentially impacting interest rate hike predictions. A "too tight" labor market could increase the chances of sooner-than-expected Fed rate hikes. The repricing of the Fed outlook has coincided with the market movements. While the US-Iran conflict and AI continue to be significant market narratives, the upcoming jobs report is seen as very important for market direction.
