Stocks on Wall Street experienced a decline on Tuesday as concerns over potential interest rate hikes later in the year led to a sell-off in major technology stocks. The S&P index dropped by 1.4%, breaking its streak of 11 weekly gains out of the last 12, driven primarily by the tech sector. The Dow Jones Industrial Average, less reliant on tech stocks, initially rose but ended the day down by 0.1%, while the Nasdaq Composite fell by 2.2%.
Canada’s primary stock index, the TSX/S&P, closed lower by 0.2%. Market downturns were also observed across Asia, with South Korea’s KOSPI plummeting by 10%, and European stocks followed suit.
The technology sector bore the brunt of the market decline, particularly companies that had witnessed significant valuation increases amid the AI technology frenzy. Notably, Micron Technology saw a 13.2% drop, Nvidia fell by 4.1%, and Samsung Electronics in South Korea dipped by 12.3%.
SpaceX experienced fluctuations in early trading but managed to close 1% higher. The company, known for space exploration and AI development, recently had a successful market debut. It also announced plans for a bond offering to support its AI initiatives.
Meanwhile, oil prices remained steady around $77 US per barrel for Brent crude, elevated from pre-Iran war levels of about $70 US per barrel four months ago.
The anticipation of interest rate hikes this year has tempered the exuberance in AI-related stocks, with concerns that higher rates could impede economic growth. Analysts have cautioned about a possible correction in the overvalued tech sector, emphasizing the need for a period of consolidation.
The Federal Reserve hinted at a potential interest rate increase before year-end, leading to a shift in market sentiment. Wall Street is now pricing in an 85% probability of a rate hike in 2026, up from 60% the previous week. Bond yields, while slightly lower, continue to reflect worries about inflation.
In Asian and European markets, shares declined, with Japan’s Nikkei 225 dropping by 3.6% and European semiconductor stocks weighing down the STOXX 600. South Korea’s KOSPI witnessed a 10% decline, driven by the tech sell-off and increased regulatory scrutiny in the semiconductor industry. Hong Kong’s Hang Seng Index and the Shanghai Composite also registered losses.
Overall, market volatility persists as investors navigate the evolving economic landscape and the potential impact of future interest rate decisions.