High-tech stocks fall on AI investment anxiety, gold hits 3-month low | 10/23 Market Commentary

Introduction

Hello. Today is Friday, October 23rd. In this article, I will summarize the movements of the US market on Thursday the 22nd, the Tokyo market on Friday the 23rd, and the price movements of gold and silver.

The keywords for the latter half of this week are anxiety over whether “investments in AI can be recouped” and “rising crude oil prices.” High-tech stocks were sold off following Meta Platforms’ earnings report, and that trend spread to the Tokyo market. Meanwhile, gold and silver have also seen significant price drops. Next week is an important week where the FOMC (Federal Open Market Committee, the meeting that decides US monetary policy), the Bank of Japan meeting, and the earnings reports of major US IT companies are concentrated. Let’s look at them in order.

Key points for US stocks

The US market on the 22nd saw mixed results depending on the index.

• Dow Jones Industrial Average: $52,867.98 (up $11.89 from the previous day), remaining almost flat

• S&P 500: 7,663.43 (down 93.74 from the previous day, -1.21%)

• Nasdaq Composite: 26,008.86 (down 694.00 from the previous day, approx. -2.6%)

The decline was centered on high-tech stocks. Although Meta’s quarterly earnings themselves were strong, concerns grew that “investments might be too large” due to their increased capital expenditure plans for AI, causing the stock price to fall by about 7%. Reports also indicate that Meta’s CDS (a type of insurance premium to prepare for the risk of a company being unable to repay its debts) has risen to near record-high levels.

Tesla also fell about 3% following its earnings report. While revenue for the July-September quarter fell slightly short of market expectations, adjusted earnings per share exceeded expectations. However, it seems that plans to increase investment in the humanoid robot “Optimus” and other projects from 2027 onwards were a factor.

Semiconductor stocks were also weak, with Lam Research, KLA, and AMD falling. According to a summary by OANDA Securities, the Nvidia CEO’s mention of funding shortages for AI cloud operators also spread anxiety regarding AI financing.

On the other hand, funds flowed into “defensive” sectors that are less prone to being sold off. By sector in the S&P 500, consumer staples were up 3.11%, utilities up 1.98%, and healthcare up 1.33%. Individually, Procter & Gamble (P&G) rose as its adjusted earnings per share exceeded expectations in its earnings report and it maintained its full-year outlook. Also, in after-hours trading, Western Digital was bought following the announcement of earnings that exceeded expectations and a dividend increase.

Rising crude oil prices are also in the background. Due to tensions in the Middle East, WTI crude oil futures (December delivery) rose to $99.04 per barrel. However, long-term US interest rates are falling, providing a moment of relief for the stock market in terms of interest rates.

Key points for Japanese stocks

In the Tokyo market on the 23rd, the Nikkei Stock Average continued to fall.

• Nikkei Average: 62,693.16 yen (down 214.68 yen from the previous day)

• During trading hours, the decline temporarily exceeded 1,400 yen, and there was a moment when it fell below 62,000 yen

• Trading value on the Tokyo Stock Exchange Prime Market: approximately 8.9383 trillion yen

In the morning, selling spread to AI and semiconductor-related stocks following the decline in US high-tech stocks. As of the morning session, Advantest, SoftBank Group, Tokyo Electron, TDK, and Ibiden were significantly pushing down the index. However, in the afternoon session, dip-buying (buying at lower prices) entered some semiconductor stocks, and the decline narrowed significantly.

By sector, real estate, retail, and fisheries/agriculture rose, while banking, shipping, and non-ferrous metals fell. Major stocks that rose included Fast Retailing, Chugai Pharmaceutical, Kioxia HD, Ryohin Keikaku, and Aeon, showing a movement of funds into stocks related to domestic demand (domestic consumption) and pharmaceuticals.

Next week, domestic earnings announcements will be in full swing. Shin-Etsu Chemical, Chugai Pharmaceutical, and Canon are scheduled for the 27th; Hitachi, Advantest, and NEC for the 28th; and Renesas, Komatsu, Fujitsu, Denso, and Takeda Pharmaceutical for the 29th. Advantest, in particular, is expected to be in the spotlight as a gauge for whether demand for AI-related semiconductors remains strong.

Gold and Silver Price Movements and Outlook

Gold and silver also saw significant declines.

• Gold: COMEX gold futures (December contract) closed at $4,043.50 (-$106.50, -2.57% from the previous day). During Asian trading hours on the 23rd, the spot price hit the $4,013 level, marking its lowest point since July 20.

• Silver: Fell to around $55 per ounce (according to a summary by U.S. precious metals dealers, it was $55.94 on the 22nd, down 3.52% from the previous day).

Two main reasons are cited for the decline. The first is the rise in crude oil prices. When crude oil prices rise, inflation (price increases) tends to persist, strengthening the view that central banks will continue to raise interest rates. Since gold and silver do not generate interest, they become less attractive when interest rates are high. The second reason is that reports of Russian President Vladimir Putin being “in principle in favor” of resuming peace negotiations with Ukraine weakened the movement to buy gold as a safe-haven asset.

Regarding the future outlook, Gaitame.com Research Institute considers the base scenario to be that the FOMC will keep interest rates unchanged, with gold moving in a range of $4,060 to $4,220. Their view is that if expectations for a December rate hike recede, it could exceed $4,220, while if there is a strong suggestion of additional tightening, it could fall below $4,060. On the other hand, some point out that demand remains solid in the long term, as evidenced by the increase in global gold ETF holdings in September and the continued gold purchases by the People’s Bank of China.

Upcoming Events to Watch

Dates are shown based on the announcement source (local time).

• October 27-28: FOMC (results expected around 3:00 AM JST on the 29th). A hold is considered the most likely outcome, with the focus on whether there will be any hints regarding a December rate hike.

• October 28 (U.S.): Microsoft and Alphabet earnings announcements.

• October 29 (U.S.): Q3 GDP preliminary report, September PCE (Personal Consumption Expenditures) price index, and Amazon earnings. The ECB (European Central Bank) Governing Council meeting will also be held on the same day.

• October 29-30: Bank of Japan Monetary Policy Meeting (results expected around noon on the 30th, with the Outlook Report also to be released).

• November 2 (U.S.): Apple earnings.

• November 3: U.S. midterm elections.

• November 6: U.S. October employment report.

Summary

This week’s market was weighed down by concerns over whether massive investments in AI will truly lead to profits, as well as caution regarding inflation and interest rate hikes due to rising crude oil prices. In the stock market, funds shifted from high-tech and semiconductors to daily necessities and domestic demand-oriented stocks, while gold and silver were also sold off due to concerns over interest rates.

Next week, the FOMC and Bank of Japan meetings, as well as the earnings reports for Microsoft, Alphabet, and Amazon, will all be concentrated within a few days. In the U.S., the focus is on the capital investment plans of major IT companies and their explanations of whether those investments are leading to profits, while in Japan, the focus is on the earnings of semiconductor-related companies and the Bank of Japan’s decisions. As this is a period when price movements are likely to be significant, it is a good time to stay calm while checking the news.

This article is for informational purposes only and does not recommend the buying or selling of any specific stocks or products. Please make investment decisions at your own discretion.