Asian equities saw a downturn with a 1.1% drop in the regional gauge, led by a significant 3% fall in South Korea’s tech-heavy Kospi. The decline follows a volatile session on Wall Street, where the S&P 500 ended flat despite an early rally.
Oil prices drew attention as Brent crude rose following a projectile strike on a vessel in the Strait of Hormuz, although prices edged lower in early Asian trading. Bond traders adjusted their expectations for a Federal Reserve interest-rate hike after the central bank’s inflation gauge rose less than anticipated.
Investor concerns are growing over whether tech giants can sustain the high expectations embedded in their share prices, particularly with recent volatility in chip stocks. Micron Technology Inc. provided some relief with positive results, but the sector remains unstable.
“A few cracks have developed in the tech sector recently.”
Matt Maley, Miller Tabak
The Nasdaq 100 Index rose 0.8% on Thursday, buoyed by Micron and Qualcomm Inc., which forecast significant future sales from AI components. However, early Asian trading lacked this optimism, with major tech stocks like SK Hynix Inc. and Samsung Electronics Co. dragging down the regional benchmark.
The Fed’s preferred inflation gauge, the personal consumption expenditures price index, rose 0.4% in May, below the expected 0.5%. The annual rate increased to 4.1%, still above the Fed’s 2% target. Interest-rate swaps indicated a reduced likelihood of a rate hike this year, with a one-in-three chance of an increase next month.
“The worst of inflation and consumer angst may be mostly behind us.”
Brian Jacobsen, Annex Wealth Management
Background
The recent market fluctuations reflect investor uncertainty about the sustainability of tech sector growth, which has been a major driver of the market rally over the past two years. Concerns about AI spending have added to the volatility in chip stocks.
Looking ahead, market participants should monitor the tech sector closely, as continued declines could hinder broader market progress. Additionally, the Federal Reserve's actions regarding interest rates will remain a key focus for investors.
