[US Market 10/16] Nasdaq down 2%, tech stocks sold off due to concerns over AI investment funding

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To sum up today’s US market in one phrase

The US market on Friday, October 16, saw a sell-off centered on tech stocks, with the Nasdaq Composite falling significantly by -2.15%.

The scale of debt supporting AI data center investments was brought back into focus, leading to a spread of selling in semiconductor and AI-related stocks. On the other hand, defensive sectors such as energy and utilities rose.

It was a day where tech stocks were sold off and capital fled to energy and defensive stocks.

Movement of major indices

• S&P 500: 7659.44 (-1.09%)

• Nasdaq Composite: 26140.03 (-2.15%)

• NY Dow: 52002.41 (-0.34%)

• Russell 2000: 2721.37 (-1.66%)

• VIX (Volatility Index): 19.99 (+21.45%)

• US 10-Year Treasury Yield: 5.10% (+0.18% from previous day)

• USD/JPY: 157.99 yen (+0.02%)

• WTI Crude Oil: $99.04 (+1.09%)

• Gold: $4186.7 (+0.40%)

The VIX (an index showing market anxiety) rose by more than 20% to near 20. According to reports, the Nasdaq fell about 4.5% and the S&P 500 fell about 1.9% for the week, marking the largest weekly decline since June.

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Today’s featured topics and why they moved

Concerns over AI infrastructure debt lead to sell-off in semiconductor stocks

CoreWeave, which handles cloud services for AI, reportedly holds approximately $50 billion in debt. Concerns have intensified once again that data center construction is being driven by reliance on borrowing.

Following this trend, Micron and Intel fell by over 5%, and the S&P 500 technology sector saw a decline of over 3%. Nvidia CEO Jensen Huang is moving to dispel these concerns, stating that CoreWeave’s finances are improving daily.

High inflation and interest rates weigh on the market

The September CPI (Consumer Price Index) announced this week was 3.7% year-on-year, exceeding expectations, and the PPI (Producer Price Index) also saw a significant increase of 6.3% year-on-year.

The US 10-year Treasury yield is at a high level of around 5.1%. When interest rates are high, the burden on companies that borrow to invest increases, and the valuation of high-tech stocks, which are expected to grow in the future, tends to decline.

Energy stocks rise due to high crude oil prices

WTI crude oil rose to the $99 range following reports of attacks around the Strait of Hormuz and threats to Russian oil refineries. Driven by the rise in crude oil prices, the energy sector was the strongest performer, up 2.52%.

Next FOMC meeting is October 27-28

Federal Reserve Chair Warsh has not provided clear clues regarding the next interest rate decision. With inflation indicators remaining strong, market attention is focused on the outcome of the next meeting.

Amid high interest rates, will AI investments truly lead to profits? The market is looking to confirm the answer through earnings reports.

Sector strength and weakness

Strong sectors

• Energy: +2.52%

• Utilities: +1.34%

• Consumer Staples: +1.08%

• Financials: +0.45%

Weak sectors

Defensive sectors like utilities and consumer staples, which are less sensitive to economic conditions, were bought, marking a typical risk-off pattern.

Notable earnings

Earnings that moved the market today

• Travelers (Insurance): Although earnings per share and revenue exceeded expectations, the stock price trended lower due to concerns over high insurance payouts caused by disasters.

• Interactive Brokers (Online Brokerage): Revenue exceeded expectations, while adjusted earnings per share fell slightly short of expectations.

Notable earnings to watch from next week onwards

• October 20 (US time): Netflix (NFLX)

• October 22: Meta (META)

• October 22: Tesla (TSLA)

• October 29: Microsoft (MSFT)

• October 29: Alphabet (GOOGL)

• October 29: Eli Lilly (LLY)

• October 30: Amazon (AMZN)

Netflix’s announcement is on the 20th US time, which corresponds to the 21st in Japan time. Dates are scheduled and subject to change.

Starting next week, earnings from major tech companies will begin in earnest. Whether massive investments in AI are translating into profits will likely be the biggest focus.

Perspective as a long-term index investor

A drop of over 2% in a single day or over 4% in a week feels significant when seen in the news. However, according to reports, both the Nasdaq and the S&P 500 are still in positive territory by more than 10% year-to-date.

Also, while tech stocks fell sharply on this day, energy and utilities rose. If you are diversified across a wide range of sectors like the S&P 500, other sectors will help cushion some of the decline.

Short-term declines are waypoints that occur many times during long-term investing. Before changing your accumulation settings, it is worth remembering your investment horizon.

Summary

• Due to concerns over debt for AI infrastructure, the Nasdaq fell significantly by -2.15%.

• High inflation and long-term interest rates in the 5% range are weighing on tech stocks.

• Energy stocks were bought due to rising oil prices, and defensive sectors such as utilities and consumer staples also rose.

• Next week, earnings for Netflix, Meta, and Tesla are coming up, and the FOMC and earnings for major tech companies are scheduled for the end of the month.

Especially during times of high volatility, let’s organize the facts and face the market calmly.

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