Tech-heavy indices on Wall Street had their worst day in months on Thursday, October 22, as disappointing results from Meta Platforms and Tesla, coupled with spending concerns surrounding AI companies and rising crude oil prices led to investors rotate out of these outperforming names into dividend paying staples and utility stocks.
The shift to safer stocks resulted in the Dow Jones outperforming the S&P 500 and Nasdaq, recovering more than 300 points from the day’s low to end at the flat line. The S&P 500 fell 1.2%. The real pain was felt by the Nasdaq indices. The Nasdaq Composite fell 2.6%, while the Nasdaq 100 dropped 2.9%, marking the biggest single-day fall since June. The Philadelphia Semiconductor index fell 7% overnight, to the lowest level in over three months.
Shares of Meta Platforms fell 7% overnight as investors assessed the company turning free cash flow negative for the first time since its listing. The company also announced even higher spending commitments, $825 billion to be precise, for future contracts, compared to $700 billion announced in July. As a result, a measure of Meta’s credit risk rose to a record high overnight, while its bonds weakened. The stock lost over $100 billion in value.
Meta’s fall triggered a sell-off in its peer companies as well. Nvidia (down 4.4%), Amazon (down 4.6%), Microsoft (down 2.2%), and Alphabet (down 3.1%), cumulatively lost nearly $800 billion in market capitalisation. Apple and Netflix were the only two tech names that bucked the trend, ending higher amidst the sell-off.
The memory chip makers had it worse. Shares of AMD, Intel, the ADRs of SK Hynix fell 8% each, while those of Micron, Western Digital, Sandisk also dropped between 6% to 8% overnight. Western Digital shares fell another 5% in extended trading even after its results beat expectations by a wide margin, its EPS guidance was ahead of expectations and the company also boosted its quarterly dividend payout by 17%.
Another major fear or risk emerged from Nvidia CEO Jensen Huang’s interview to CNBC, where he said that while demand for neoclouds like CoreWeave is “off the charts”, capital constraints are preventing growth in the sector, as their is more demand for capital than its availability.
Crude oil prices continued to climb with Brent Crude ending above the $113 a barrel mark overnight as Houthis claimed responsibility for attacks on a Saudi Aramco oil field, the King Fahd Airport and the Aramco headquarters earlier. The world’s largest oil company has told its employees to vacate its headquarters at Dhahran and work from home. Despite the jump in futures, prices of Dated Brent, or Physical Crude Barrels has dropped nearly $15 in the last two weeks to nearly $120 a barrel.
A fallout of the equity market sell-off has also been seen on the bond yields, which fell sharply as investors flocked to haven assets like bonds. The US 10-year bond yield fell below the mark of 5% for the first time in over a month, with some tenors seeing yields fall over 20 basis points.