Written by Wall Street rebound falters on AI fears
US tech stocks slumped on Tuesday, led by a selloff in software and IT companies on concerns that artificial intelligence (AI) will hurt professional services and consultancy businesses. The concerns were sparked after Anthropic – a public benefit corporation founded by former Open AI executives – launched a new AI tool for legal firms that automates workflows, threatening data analytic jobs in industries such as legal, accounting and marketing.
Microsoft, which is more software-focused than its peers and therefore more vulnerable from such a disruptive shift, tumbled the most among the Big Tech. But chip stocks also came under pressure, with Nvidia losing 2.8%, amid broader AI jitters on the back of the ongoing doubts about the sustainability of the heavy investment in the sector.
The Nasdaq 100 ended Tuesday’s session 1.6% lower, while the S&P 500 fell 0.8%. E-mini futures are steadier today, but any recovery is likely to be tepid following an 8% plunge in Advanced Micro Devices’ (AMD) stock in after-hours trading.
AMD reported upbeat Q4 earnings after Wall Street’s closing bell, but investors were not impressed by the chipmaker’s forecast for the current quarter. The spotlight later today will fall on Google owner, Alphabet, which is the best performing Magnificent Seven stock so far this year.
Gold regains its mojo, oil up on Iran tensions
Yesterday’s tech rout boosted gold, which surged 5.9% to just under $5,000, and the precious metal is extending its gains today, crossing back above that crucial threshold. Gold’s more than 20% crash from last week’s record high to Monday’s intra-day low appears to have been a short-lived panic, as the price has already retraced more than 50% of that drop.
Geopolitical tensions are likely supporting the rebound amid the elevated risk of a military escalation between the United States and Iran. The US military said on Tuesday its fighter jets shot down an Iranian drone headed towards the Abraham Lincoln aircraft carrier, which was sent to the Arabian Sea on President Trump’s orders.
However, Trump later told reporters that “We are negotiating with them right now”, suggesting the White House remains focused on reaching an agreement with the Iranians on Tehran’s nuclear program.
Nevertheless, the skirmish was enough to push WTI oil prices above $63.00 a barrel, although futures are trading slightly lower today.
Rotation out of tech lifts small caps but not cryptos
Meanwhile, equities are mostly positive today, suggesting some improvement in risk appetite. Interestingly, small caps have been gaining over the past couple of days, with the Russell 2000 bucking the trend among US indices to close higher yesterday.
There have been no rotation flows, however, towards cryptocurrencies, which have been unable to attract much interest lately even on days when Wall Street rallied. Bitcoin slid to a 15-month low of $72,902.78 on Tuesday. It’s steadied around $76,000 today, but as long as the passage of the CLARITY Act by the US Senate remains stalled, it will be difficult for the major cryptos to stage much of a recovery.
Dollar consolidates, yen struggles
Staying on the legislative front, the House of Representatives yesterday passed the $1.2 trillion funding bill for the US government, which had been temporarily shut since Friday. The end of the shutdown is likely aiding sentiment today, so are positive services PMI readings in Australia, China and Japan. European PMIs were revised slightly lower, though, in S&P Global’s final estimates for January.
In the currency markets, the US dollar is mostly flat today, as it consolidates from Monday’s 10-day peak against a basket of currencies. The partial government shutdown may not have lasted long but it’s already claimed casualties, as Friday’s nonfarm payrolls report for January has been postponed.
That’s put the focus on the ADP employment report as well as the ISM services PMI due later today.
Stronger-than-expected data out of the US would be bad news for the Japanese yen, which is on the backfoot again. The dollar is continuing its ascent for a fourth straight day, rising to 156.65 yen, as investors bet that an expected victory for Prime Minister Sanae Takaichi and her LDP party in Sunday’s snap election will increase the risk of more fiscal stimulus in Japan, straining the country’s debt position.
By XM.com
