Global stocks came under pressure as a sell-off in chip stocks accelerated, while traders prepared for Wall Street banks to effectively begin their US earnings season.
The MSCI Asia Pacific Index fell 1.4%, dropping to its lowest level since August, pressured by declines in shares of South Korean chip giants SK Hynix and Samsung Electronics.
Nasdaq 100 futures fell 0.8%, and S&P 500 futures declined 0.1%, while the European Stoxx 600 index bucked the trend, rising 0.3% as pressure eased on stocks most affected by economic conditions amid falling oil prices and bond yields.
Enthusiasm for artificial intelligence is waning
A key sector of AI-related trading is under increasing pressure as traders reassess whether continued investment in the technology is viable amid rising safety concerns and signs of funding pressures.
The sell-off in shares of major Asian chipmakers intensified on Tuesday following a report that Chinese rival CXMT had made progress in developing a memory chip that Samsung and SK Hynix are also working on.
This news came one day after the CEO of Broadcom indicated that many AI investors do not fully understand what they are betting on.
Sellers are leading trading in the stock markets.
“Sellers have the upper hand in most AI-related trades,” said Chris Weston, head of research at Pepperstone, in a note. “Buyers are standing aside, while sellers face little resistance in pushing prices down,” he added, according to Bloomberg.
Meanwhile, shares of major US banks entered correction territory sharply, with Citigroup, Goldman Sachs, JPMorgan Chase and Wells Fargo preparing to announce financial results ahead of the US market opening.
The KWB Banks Index has fallen by about 12% from its mid-August peak, meaning it has crossed the 10% threshold that indicates a technical correction.
Bank stocks have come under pressure from volatility in bond markets, with bond yields rising to their highest level in decades, while also facing the impact of rising interest rates on credit cards, mortgages and car loans.
More broadly, data compiled by Bloomberg Intelligence shows that companies listed on the S&P 500 are expected to post a 25% jump in third-quarter earnings compared to the same period last year.
However, the high expectations suggest that earnings growth alone may not be enough to push stock prices higher, according to Linh Tran of XS.com.
Tran added, according to Bloomberg: “Investors are paying more attention to how well financial results have exceeded expectations, and whether companies are able to continue growing, as reflected in revenues, profit margins and business outlook over the coming quarters.”
Concerns about corporate finance
Investors also remain concerned about the billions of dollars that technology companies have raised this year to fund the expansion of artificial intelligence infrastructure.
April Larousse, co-head of global client portfolio management at BNY Investments, said in an interview with Bloomberg Television: “There are concerns that these debt issuances are crowding out other types of bond issuances and, frankly, causing a great deal of anxiety within the bond market.”
On Tuesday, Tencent Holdings began marketing bonds in an offering that could raise about $5 billion to support its growing investments in artificial intelligence.
The dollar is falling and the rupee continues to rise.
In other markets, Brent crude fell 1.2% to $105.37 a barrel. US Treasury yields declined as investors sought safe-haven assets, with the benchmark 10-year yield dropping five basis points to 5.19%.
The Bloomberg Dollar Spot Index, a measure of the US currency's performance, fell 0.2%, while gold rose 0.5% to $4,191 an ounce, and Bitcoin climbed 0.7% to $83,604.
The Indian rupee continued its gains on Monday after the central bank announced additional measures to support the currency, which is facing pressure from rising oil prices and foreign capital outflows.
