The Nasdaq composite dropped 2.2% in early trading Tuesday as a sell-off in major technology companies spread from Asia back to the United States. The S&P 500 fell 1.5%, while the Dow Jones Industrial Average, which has less weighting in tech, declined 0.6%.
Rate Hike Fears Deflate AI Stock Rally
The growing likelihood of interest rate hikes this year has helped deflate a massive run-up in artificial intelligence-related stocks in recent days. Traders worry that higher rates could hamper economic growth. The S&P 500 had posted 11 weekly gains out of the last 12, largely driven by tech stocks.
Micron Technology slumped 12% in early trading. Chip companies were among the biggest losers in overnight trading, with Intel down more than 7% and Qualcomm falling 6.3%. Memory and data storage firms also took a beating: Sandisk fell nearly 9% and Seagate was down 7.2%.
SpaceX Shares Slide Further
Elon Musk's SpaceX, which owns xAI, slipped another 1% before the bell after a 16.4% tumble to start the week. SpaceX trades on the Nasdaq, which has suffered heavy selling for days as investors grow anxious over massive spending by AI companies and looming interest rate hikes. SpaceX was trading just above $156 per share before the bell, still up from its market debut but down from highs of more than $200 last week.
Bond Yields Stabilize; Inflation Data Awaited
Oil prices were nearly unchanged, with U.S. crude at $73.77 a barrel and Brent crude at $77.71. Bond yields stabilized overnight after climbing for the past week on speculation that the Federal Reserve may hike interest rates this year to keep a lid on accelerating inflation caused by months of rising oil prices due to the Iran war.
Economists forecast that a measure of U.S. consumer inflation due out Thursday from the government sped up to 4.1% in May from 3.8% in April. The yield on the 10-year Treasury settled around 4.49% early Tuesday, up from 4.43% a week ago and 3.97% before the war.
Fed Rate Hike Odds Jump
According to data from CME Group, traders are betting on a nearly 90% chance the Fed will raise its federal funds rate at least once by the end of the year, up from 57% a week ago. High yields in bond markets worldwide, caused by worries about inflation, threaten to slow economies and have already sent rates higher for mortgages and other loans. High yields also hurt prices for investments, particularly those seen as the most expensive, raising pressure on companies whose stock prices have soared in the AI mania.
Global Markets Decline
In Europe, France's CAC 40 dipped 0.6%, the German DAX fell 1%, and Britain's FTSE 100 declined 0.5%. In Asia, Japan's Nikkei 225 lost 3.6% to finish at 69,788.38. Australia's S&P/ASX 200 was down 0.3% at 8,787.00. South Korea's Kospi tumbled 10.0% to 8,203.84, dropping from previous record highs due to a sell-off in major technology issues and signs of greater regulatory scrutiny in the semiconductor sector. Hong Kong's Hang Seng slipped 1.8% to 23,336.28, while the Shanghai Composite shed 1.4% to 4,106.25.
