All the major US stock indices ended lower on Thursday, marking the third consecutive negative session. Once again, the decline was most notable across smaller companies, as the small-cap, domestically focused Russell 2000 ended down 1%. It was just a week ago that the Russell finally managed to eke out a fresh all-time high, having lagged when compared to this year’s succession of record highs for the other majors. But there was also some significant weakness across the technology sector, where the artificial intelligence (AI) trade continued to experience some unwinding.
Tesla lost 4% yesterday, while Oracle, which soared over 50% at the beginning of this month, dropped 5%. Oracle’s rally came after the company announced surging demand for its cloud services, particularly from firms involved in AI. Understandably, as concerns build over the amount of capital being spent on AI, and the possibility of diminishing returns, Oracle was in the direct firing line when it comes to investors cutting back their exposure.
Source: TN Trader
Yesterday also saw a clutch of better-than-expected data releases. Second quarter GDP growth was revised up to 3.8% annualised, from 3.3%. Durable Goods came in at +2.9%, versus the –0.3% forecast. Existing Home Sales were also positive, while weekly Unemployment Claims dropped back sharply to 218,000 from 232,000 previously. This helps to reverse the shocking 263,000 gain from earlier this month. It also takes the four-week average back within the 220-240,000 range, which has been the norm for the past four post-COVID years.
Taken all together, investors concluded that yesterday’s good data made it less likely that the Fed would look to cut rates aggressively going forward. Hence, the weakness across the US majors and an uptick in Treasury yields. Meanwhile, today’s Core PCE inflation release for August came in as expected, +2.9% year-on-year, unchanged from July.
US stock index futures were mixed in early trade this morning. It was noticeable that semiconductor companies were struggling. NVIDIA was down a relatively modest 0.8%. But AMD, SMC and TSMC were harder hit, dropping 1.3%, 2.0% and 1.6% respectively. Bucking this trend was Intel. The much-troubled US chipmaker is currently enjoying a bit of a renaissance, having added around 40% since the middle of last week.
This morning it tacked on around 4%. Meanwhile, the US majors headed higher as the day wore on. Much now depends on how equities behave as we head into the weekend, and ahead of the month, and more importantly, the end of the third quarter, early next week.
Yesterday, the VIX hit its highest level since the beginning of September, before pulling back. The index has been picking up steadily over the past week. And while it remains a long way from levels which would indicate market distress, it has risen over 9% in little over a week.
Despite this week’s pullback across US stock indices, the move in the VIX so far highlights that investors are not rushing to hedge any downside risk aggressively at this point. Instead, the index remains steady, reflecting a market that is waiting for a fresh catalyst.