Wall Street’s primary indices showed limited movement at the start of trading on Wednesday, following a tech-driven sell-off in the prior session due to rising concerns about valuations. The Dow Jones Industrial Average increased marginally by 0.03% to 47,097.31, the S&P 500 dipped slightly by 0.03% to 6,769.77, and the Nasdaq Composite edged up by 0.04% to 23,358.075.
The selling pressure continued into the next day in global markets, with Seoul and Tokyo markets dropping around five percent from their recent peaks. While the decline in technology stock prices raised caution among brokers and investors, it has not sparked panic yet, as they have been riding a market surge to all-time highs with stretched valuations.
The notable casualties have been the top performers in a rally that propelled chipmaker Nvidia to become the most valuable company globally. According to Jon Withaar, a senior portfolio manager at Pictet Asset Management in Singapore, the sell-off seems largely driven by positioning, with recent top-performing stocks bearing the brunt of the downturn.
The pullback, which commenced with a negative response to strong financial results from Palantir Technologies, lacked an apparent trigger. Shares of the market favorite, Palantir Technologies, closed nearly eight percent lower on Tuesday and dropped an additional three percent in after-hours trading.
Herald van der Linde, HSBC’s head of equity strategy for Asia Pacific, expressed concerns about the saturation in AI stocks and the possibility of a market rotation. Nvidia shares fell about four percent on Tuesday, while related companies across the AI supply chain faced selling pressure in Asian markets on Wednesday.
Amid fears of an AI bubble, the Nasdaq’s two percent decline on Tuesday followed a significant surge of over 50% from April lows. Market leaders like Ted Pick from Morgan Stanley and David Solomon from Goldman Sachs voiced unease in markets and hinted at a potential pullback during an investment summit in Hong Kong.
Renowned investor Michael Burry, known for predicting the U.S. housing bubble collapse, has taken a bearish stance against Nvidia and Palantir, raising concerns about a potential bubble burst. The cautionary advice from South Korea’s stock exchange against investing in SK Hynix, a chipmaker that tripled in value over a year, further fueled a six percent decline over two days.
Matthew Haupt, lead portfolio manager at Wilson Asset Management in Sydney, interpreted the market downturn as investors cashing out before a crucial U.S. Supreme Court hearing on tariff legality. Despite the uncertainty, Haupt remained optimistic, stating, “I’ve been buying today. I hope I’m right.”