Chinese Artificial Intelligence breakthroughs could potentially shrink the U.S. markets of technology, semiconductors and AI. Heavy concerns over China’s sudden emergence in the AI sector distressed investors and traders, as related stocks sold off in the late Friday’s session. The PHLX Semiconductor index lost over 10% for the week, with Friday’s hit. Both the S&P 500 and Nasdaq Composite’s high tech sectors fell abruptly in trading as the week closed. The S&P 500 finished down 1.1% while the heavy–tech Nasdaq dropped 1.4%. The culprit, China’s AI Moonshot, announced that their innovation of AI will “out–perform U.S. systems.” “This is concerning,” said David Sacks, co–chairr of the President’s Council of Advisors Science and Technology. U.S. investors have in the last several sessions been moving out of chip and tech stocks as criticism mounts over high stock prices, rotating into proven value companies as volumes in the Russell 2000 and the blue chip Dow Jones Industrial Average have swelled of late. Buying of energy, financials, healthcare and industrial stocks have shown abnormally heavier volumes. The projected massive build–out of AI continues to ‘haunt’ prospective investors as many related stocks are beginning to show signs of losing their market foothold. Investors’ concerns are evident as all three indexes were lower for the week. The Dow Jones fell 0.9%, with the S&P 500 and Nasdaq dropping 1.6% and 2.9% respectively. The Nasdaq took the biggest hit as it holds a majority of tech, semiconductor and AI stocks. Quarterly earnings reports due out in the coming weeks are also a factor, as investors weigh results. “It’s natural for investors to want to pull back a little bit in advance of earnings releases,” said Carol Schleif, chief market strategist at BMO Wealth Management. “And it’s not unusual for investors to be fearful after the kind of run that AI stocks had over the last 12 months.”
Monday’s market opened cautiously as investors were swayed by several negatives. The stubborn U.S. Israeli/Iranian war, continuing worries of the massive cost of the artificial intelligence builld–out, and the increasingly high valuations of market favorites. Also weighing on the market is the upcoming Fed decision on interest rates due next Wednesday. The Dow Jones Industrial Average lost 307 points Monday, while both the S&P 500 and Nasdaq fell 0.2% and 0.1% at day’s finish. Jeff McClean, chief executive officer of Solidarity Wealth, commented on the future of AI and semiconductor stocks, saying: “Short term, I think the party goes on. Longer term, there’s some concern there–can those earnings keep up continually?” Oil surged with Benchmark crude jumping to $89.23 a barrel while West Texas crude followed up to $83.23 a barrel. As the ‘war of words’ between the U.S. and Iran continues, the price of oil creeps higher.
Restless investors and traders ‘came alive’ Tuesday, breaking a 3 day streak of losses. Heavy buying of technology, chip, and semiconductor stocks shoved the heavy–tech Nasdaq Composite up 1.3%, leading all indexes. The Dow Jones followed, up 385 points. Concerns last week of the Chinese report on their AI future and the impact on U.S. makers has subsided somewhat as Michael Arone a strategist at State Street Investment Management said: “It’s just kind of a hiccup along the way to what’s been a pretty long AI infrastructure spending cycle that’s likely to continue.” The Philadelphia semiconductor index was up 5.2% with added optimism. Oil moved higher as Brent Crude hit $91.01 a barrel, the highest in 40 days. West Texas crude finished at $84.91 a barrel. So goes the war, so goes the price of oil. Wednesday’s announcement of crude oil’s sudden turnaround of the stockpile of oil (due to increased imports and decreased exports) according to the U.S. Energy Information Bureau, did not give a boost to the market as all three indexes fell.
RUMBLINGS ON THE STREET
Mark Malek, chief investment officer at Siebert Financial, WSJ – “The markets are behaving right for all the wrong reasons.” He added; “investors who are focused on buying on the dip are missing the forest for the trees, looking past inflationary forces that should be driving valuations down.”
Xi JInping, Chinese Leader, WSJ – “We should oppose over–stretching the concept of national security in the field of AI or placing one country’s security over that of others.” (without naming the U.S.)
Kevin Warsh, Federal Reserve Chair, WSJ – “If we get policy right–and we will– the inflation surge of the last five years will be a thing of the past.”
