[New York Stock Market] AI Skepticism Spurs Broad Selling... Nasdaq Down 1.59%

The three major stock indices in New York all finished lower. As technology stocks plunged on concerns over artificial intelligence (AI), selling pressure spread and dragged down blue-chip stocks as well.

On the New York Stock Exchange, the Dow Jones Industrial Average, which is centered on blue chips, closed at 48,908.72, down 592.58 points (1.2%) from the previous session. The large-cap-focused S&P 500 Index ended at 6,798.4, down 84.32 points (1.23%). The tech-heavy Nasdaq Composite Index closed at 22,540.586, slipping 363.993 points (1.59%).

Reuters and Yonhap News Agency

Selling in technology stocks continued on the day. The market is anxiously watching the massive AI investment amounts by big tech (large information technology companies) and is waiting for clear evidence that these investments are actually feeding through to revenue and profit.

Alphabet, Google’s parent company, projected that it will increase its capital expenditures this year to as much as 185 billion dollars, and its share price fell 0.54% following the announcement. However, Broadcom’s share price rose 0.8% on the back of Alphabet’s large-scale investment plan.

Microsoft (MS) dropped 4.95% as concerns mounted over AI infrastructure investment and weakness in its cloud services, pushing its market capitalization below 3 trillion dollars. Nvidia declined 1.33%, and Palantir finished down 6.83%.

Software-related stocks also continued to slide. ServiceNow and Salesforce fell 7.6% and 4.75%, respectively.

Amazon fell 4.42% during regular trading and then released its earnings after the close, with its shares moving about 10% lower in after-hours trading. Amazon said its fourth-quarter revenue last year was 213.39 billion dollars and its earnings per share (EPS) came in at 1.95 dollars. Revenue exceeded the forecast of 211.33 billion dollars compiled by market research firm LSEG, but EPS was slightly below the consensus estimate of 1.97 dollars.

Tom Hainlin, investment strategist at U.S. Bank Wealth Management, said, “This is the first time that big tech companies such as MS, Alphabet, and Amazon have gone through a capital-expenditure cycle of this magnitude,” adding, “Volatility is emerging amid uncertainty over whether these investments will ultimately translate into performance.”

In the virtual asset market, selling continued and Bitcoin fell to 64,000 dollars, dropping below the 70,000-dollar level that had been regarded as a “psychological resistance line.” Silver ended its two-day rebound and plunged as much as 16%.

The indication that the labor market is deteriorating again also weighed on investor sentiment. The U.S. Department of Labor said that initial jobless claims for the week of January 25-31 came in at 231,000, an increase of 22,000 from the previous week. This was the highest number of claims in eight weeks, since the first week of December last year, and it also exceeded the 212,000 forecast by experts surveyed by Dow Jones.

Layoffs announced by U.S. companies in January surged. According to private employment data firm Challenger, Gray & Christmas, U.S. employers announced 108,435 job cuts in January. This represents a 118% jump from the same month a year earlier and is the largest January figure since 2009, right after the financial crisis.

Steven Turkwood, investment director at Modern Wealth Management, said, “It appears we are moving out of the phase of the past few months in which there was very little hiring or firing. There is a high likelihood that the upcoming employment report from the U.S. Bureau of Labor Statistics will confirm that layoff-related indicators have begun to turn negative,” and predicted that the U.S. Federal Reserve (Fed) will cut rates once in either March or April.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the interest rate futures market is currently pricing in a 75.3% probability that rates will be kept on hold in March.

U.S. Treasury yields are on a downward trend. The yield on the 10-year U.S. Treasury note, the global benchmark for bond yields, is at 4.188%, down 9 basis points (1 bp = 0.01 percentage point) from the previous day, while the yield on the 2-year U.S. Treasury note, which is sensitive to monetary policy, is at 3.459%, down 10 basis points from the previous day.