Stocks Drop as Tech Sell-Off Intensifies

Tech shares led a slide in US stocks as rising concerns about highly valued companies collided with growing doubts about whether the Federal Reserve will cut interest rates next month.

The tech-heavy Nasdaq Composite closed 2.3 per cent lower and the S&P 500 lost 1.7 per cent. Asian markets followed the US lower in early trading, with Japan’s Nikkei 225 index sliding 1.7 per cent and South Korea’s Kospi falling 2.2 per cent.

The Nasdaq had surged more than 50 per cent between early April — when stocks rebounded from a sell-off sparked by President Donald Trump’s tariffs — and late October as investors bet that artificial intelligence would ignite a sustained period of blockbuster growth in the tech sector.

But the index has wobbled over the past fortnight as a growing number of investors have drawn comparisons between the powerful rise in AI stocks and the ill-fated tech boom at the turn of the millennium.

“We see a growing risk that the imbalances that built up in the 1990s will become more visible as the AI investment boom extends,” said Goldman Sachs analysts Dominic Wilson and Vickie Chang in a note to clients.

Concerns that market valuations had become unhinged from fundamentals helped prompt investor Michael Burry, known for his bet against the US housing market ahead of the 2008 financial crisis, to announce he would close his hedge fund Scion Asset Management.

“My estimation of value in securities is not now, and has not been for some time, in sync with the markets,” he said in a letter to investors, dated October 27.

Thursday’s slide in equities was also accompanied by a drop in the US government bond market, sparked by falling odds that the Fed will cut interest rates in December, after two quarter-point reductions in recent months. The US two-year Treasury yield, which is sensitive to rate expectations, rose 0.03 percentage points to 3.59 per cent. Bond yields move inversely to prices.

Shares in rapidly growing companies, such as tech stocks, are seen as particularly vulnerable to shifts in rate expectations.

Tech shares that have pushed the US stock market to record highs in recent months bore the brunt of the selling pressure, with Nvidia, Broadcom and Intel all down more than 3 per cent.

Retail brokerage Robinhood lost 8.7 per cent, Elon Musk’s electric-car company Tesla fell 6.6 per cent and defence contractor Palantir shed 6.5 per cent.

AI data centre operator CoreWeave, which earlier this week unveiled an annual revenue forecast that missed Wall Street estimates, fell more than 8 per cent, taking its decline over the past month to almost 45 per cent.

Kevin Gordon, head of macro research at Charles Schwab, said: “It’s part of the digestion process the market has been going through . . . where this year’s leaders are taking a step back while the rest of the market catches up.”

“Segments of the market that are more richly valued tend to be hit hardest at first whenever skittishness around stretched multiples starts to creep back in,” he added.

The declines in the stock and bond markets came a day after Trump brought an end to the longest US federal government shutdown, which had deprived investors of vital economic data just as concerns about the state of the labour market had begun to intensify.

In the absence of key figures, Fed chair Jay Powell last month warned a December interest rate cut was “far from” a foregone conclusion.

Boston Fed president Susan Collins on Wednesday cast further doubt on a rate cut next month, arguing there was “a relatively high bar for additional easing in the near term”.

Investors are pricing in a roughly 50 per cent chance that the US central bank lowers rates when it meets next month. A quarter-point cut had been fully priced in by the market as recently as three weeks ago.

The market was “maybe a bit ahead of its skis” on expectations for Fed cuts, said Raphaël Thuin, head of capital markets strategies at Tikehau Capital.