Investors question AI rally’s limits and brace for volatility amid shifting rate cut expectations
A sharp sell-off in technology stocks sent shockwaves through North American markets on Thursday, as investors questioned whether the artificial intelligence rally had pushed valuations too far and grew increasingly uncertain about the path of interest rates, according to CNBC.
The Dow Jones Industrial Average plunged 797.60 points, or 1.65 percent, while the S&P 500 dropped 1.66 percent and the Nasdaq Composite fell 2.29 percent, marking the worst day for all three indexes since October 10, reported CNBC.
The S&P/TSX composite index in Canada was not immune, closing down 573.94 points as losses in US tech giants spilled over into Canadian markets, as noted by BNN Bloomberg.
Nvidia, a bellwether for the AI sector, was the heaviest drag after falling 3.6 percent. Other high-flying names in the artificial intelligence space, including Super Micro Computer, Palantir Technologies, and Broadcom, also posted steep declines.
According to BNN Bloomberg, these drops reflect mounting doubts about how much higher AI stocks can climb after their spectacular gains this year.
Jillian Bryan, senior investment adviser and portfolio manager at TD Wealth, explained that the Canadian tech sector’s decline was a “spillover effect from losses in large US tech companies.”
She said that Nvidia’s upcoming earnings report will further test optimism in the technology sector. “Nvidia reports early next week,” she noted.
She added that this event will challenge the optimism that “has driven markets to new highs, but has come into some scrutiny in the last few weeks.”
Investors’ anxiety was compounded by shifting expectations for US Federal Reserve policy.
As per CNBC, the probability of a rate cut at the Fed’s December meeting dropped sharply to just over 51 percent, down from nearly 63 percent the previous day, as traders digested recent comments from Fed officials and the impact of the recently ended US government shutdown.
Susan Collins, president of the Federal Reserve Bank of Boston, signalled it may be appropriate to leave rates steady “for some time,” a departure from her earlier support for another cut.
The shutdown, which was the longest in US history, delayed key economic data releases and left the central bank “flying blind,” as described by CNBC.
Now, as the government resumes normal operations, markets are bracing for a “looming data deluge” that could spur additional volatility, according to Doug Beath, global equity strategist at Wells Fargo Investment Institute, cited by BNN Bloomberg.
Despite Thursday’s losses, Bryan pointed out that the Canadian market remains up 22 percent on the year, suggesting that the recent pullback may be a natural consolidation after a strong run.
She also noted that the end of the US shutdown, which saw federal workers go without paycheques, “helps the wheels of commerce back on its feet.”
