Global markets have soared this year as an eye-watering flood of cash piled into companies linked to AI, including US titans Nvidia, Amazon and Apple as well as Asian firms Samsung and Alibaba.
However, despite strong earnings releases in recent quarters, traders have started questioning the wisdom of chasing ever-higher prices, with cash mostly funnelled into a handful of big-name companies.
The gains have also been helped by an easing of US trade tensions and expectations that the Federal Reserve will continue to cut interest rates into the new year.
However, last week’s warning from the US central bank that another reduction in December was not a foregone conclusion jolted sentiment.
After an uncertain start to the week Monday, Wall Street tumbled yesterday, with the tech-rich Nasdaq down more than 2% and the S&P 500 off more than 1%.
US software firm Palantir slumped 8% despite reporting a 63% surge in revenue and profit.
Traders were also spooked by a slump in New York-listed Super Micro Computer in after-hours business and disappointing forecasts from Advanced Micro Devices.
Asia took up the baton in the morning, with Seoul and Tokyo the hardest hit, having just hit record highs.
However many markets recovered as the day wore on and pared many of the losses.
Seoul tanked 6% at one point – with chip giants Samsung and SK hynix taking a beating – but ended the day down 2.9%.
“I view today’s decline as a correction to cool off an overheated market – a phase of adjustment,” Chung Hae-chang, analyst at Daishin Securities, told AFP.
“The recent rally was extremely steep, so this is the counterbalance,” Chung said.
He also warned Seoul’s Kospi index could decline 5% further and that “SK hynix and Samsung may also see corrections proportional to their earlier gains”.
Tokyo finished 2.5% off, having dived more than 4%.
Still tech investment giant SoftBank still lost 10% and Sony more than 1%.
Nintendo, however, finished up more than 6% a day after the gaming firm hiked forecasts for its Switch 2 console and annual profits.
‘Sea of red’
Taipei was off more than 1% as market heavyweight and chip-maker TSMC gave up 3%.
Hong Kong, Singapore, Sydney, Manila, Bangkok and Jakarta also fell but Shanghai and Wellington edged up.
London, Paris and Frankfurt opened lower.
“In the lead-up to the session, traders had been rotating out of the lower-quality end of the market and into the higher-quality plays, and this dynamic resulted in poor breadth within the US equity indices,” said Chris Weston at Pepperstone.
He added that dynamic had changed and traders were “cutting back on their winners and locking in performance, with the Magnificent Seven (leading tech stocks) basket and AI plays driving equity risk lower”.
Mike Gitlin, president and CEO of Capital Group, said that while earnings are strong “what’s challenging are valuations”, according to Bloomberg.
His comments came at a financial summit organised by the Hong Kong Monetary Authority yesterday, where other business leaders including Morgan Stanley boss Ted Pick and Goldman Sachs’ David Solomon warned of a big correction.
Saxo Markets’ Charu Chanana said two questions were echoing across portfolios.
“Those who’ve ridden the rally from early 2023 are sitting on substantial gains and wondering if it’s time to lock in profits (and) those still on the sidelines are feeling the pull of (fear of missing out, questioning if they’ve missed the best entry point.
“Both are fair concerns. The AI boom has pushed the ‘Magnificent’ names to new highs, but under the surface, their stories have begun to diverge between companies monetising AI today and those still investing for tomorrow”.
The uncertainty across markets was also felt in the crypto universe, where Bitcoin briefly fell below US$100,000 for the first time since June, a month after topping out at a record high above US$126,000.