Tech Sell-Off Deepens: Wall Street Questions AI Hype
US stocks closed out a volatile Thursday session with the Nasdaq and S&P 500 extending their losses. This continues a recent trend of Big Tech sell-offs on Wall Street, fueled by growing scepticism around the potential of artificial intelligence (AI) and concerns about the broader US economy.
The Nasdaq Composite (IXIC), the tech-heavy index, finished the day down nearly 0.9%. This comes after suffering its worst day since October 2022 on Wednesday. The benchmark S&P 500 (GSPC) also declined, dropping 0.5%. Only the Dow Jones Industrial Average (DJI) managed to end positive, with a modest gain of 0.2%.
AI Hype Fizzles?
Investor sentiment towards tech stocks has been souring recently. Disappointing earnings reports from tech giants like Alphabet (GOOGL, GOOG) and Tesla (TSLA) earlier this week have cast doubt on the ability of Big Tech companies to justify their sky-high valuations based on AI promises. Wall Street is questioning when these massive investments in AI will actually translate into tangible returns.
Further adding to the market jitters are growing worries about the health of the US economy. Recent earnings misses from major companies have raised concerns about consumer spending in the face of historically high borrowing costs.
Fed Rate Cut Speculation Heats Up
As a result of these economic uncertainties, traders are now pricing in a more aggressive stance from the Federal Reserve. Money market data indicates anticipation for a 30 basis point rate cut by September, with potentially a total of 70 basis points shaved off interest rates throughout 2024. Additionally, there’s been a slight increase in the odds of a rate cut happening even sooner, in July, according to CME FedWatch data.
However, a ray of hope emerged with the release of the advance estimate for US Gross Domestic Product (GDP). The data showed the economy grew at an annualised pace of 2.8% during the second quarter, exceeding the 2% growth expected by economists.
All eyes will be on the Personal Consumption Expenditure Price Index (PCE) update scheduled for release Friday. This data point will be crucial for the Federal Reserve in determining the timing and pace of any potential rate cuts.
Disney and Warner Bros. Bundle Debuts
In a separate development, Disney and Warner Bros. officially launched their long-awaited streaming bundle in the US on Thursday. Announced in May, the bundle combines Disney+, Hulu, and Max for a price point of $16.99 with ads or $29.99 ad-free. This move comes at a time when media companies are facing increasing pressure to scale their streaming services and achieve profitability. Additionally, they are contending with heightened competition from tech giants like Amazon (AMZN) and Apple (AAPL) who are aggressively pursuing deals in the streaming space. With consumers becoming increasingly selective, subscribing to an average of four streaming services at a cost of roughly $61 per month, media companies are looking for ways to retain loyal customers.
The new bundle from Disney and Warner Bros. follows a growing trend of media companies exploring partnerships. This follows earlier announcements like Warner Bros.’ sports streaming partnership with Disney’s ESPN and Fox (FOXA), and a joint ad-supported bundle with Netflix (NFLX) offered through Verizon (VZ) last December.
