Asian shares dive after a wipeout on Wall Street as Big Tech skids

Asian shares dropped in Thursday morning trading, with Tokyo’s benchmark losing more than 1,000 points at one point, as pessimism set in over a nose-dive on Wall Street.

U.S. stock indexes suffered their worst losses since 2022 after profit reports from Tesla and Alphabet helped suck momentum from Wall Street’s frenzy around artificial intelligence technology.

In Asia, Japan’s benchmark Nikkei 225 lost 2.7% in early trading to 38,118.49. Australia’s S&P/ASX 200 shed 1.1% to 7,876.60. South Korea’s Kospi declined 1.9% to 2,705.41. Hong Kong’s Hang Seng declined 1.2% to 17,101.45, while the Shanghai Composite fell 0.8% to 2,879.78.

Among the region’s technology shares, Samsung Electronics fell 2%, while Nintendo was down nearly 2%. Tokyo Electron tumbled nearly 5%.

Profit expectations are high for U.S. companies broadly, but particularly so for the small group of stocks known as the “ Magnificent Seven.” Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla needs to keep delivering powerful growth after being responsible for most of the S&P 500’s run to records this year.

“The negative sentiment was exacerbated by disappointing earnings from Google and Tesla, ahead of other key reports from the ‘Magnificent Seven’ in the upcoming weeks. The tech sector could be under heavy pressure in Asia today,” said Anderson Alves at ActivTrades. 

The recently strengthening yen, which has recovered from trading above 160 Japanese yen to the dollar earlier this month, also works as a negative for some Japanese companies, dominated by exporters.

In currency trading, the U.S. dollar edged down to 152.80 yen from 153.89 yen. The euro cost $1.0844, little changed from $1.0841.

On Wall Street, the S&P 500 tumbled 2.3% for its fifth drop in the last six days, closing at 5,427.13. The Dow Jones Industrial Average dropped 1.2% to 39,853.87, and the Nasdaq composite skidded 3.6% to 17,342.41.

The profit reports from Tesla and Alphabet weren’t disasters, but they raised questions among investors about which other market heavyweights’ springtime results could fall short of expectations, said Sam Stovall, chief investment strategist at CFRA.

“How many disappointments are we likely to see? Maybe let’s sell first and ask questions later.”

Tesla was one of the heaviest weights on the market and tumbled 12.3% after reporting a 45% drop in profit for the spring, and its earnings fell short of analysts’ forecasts.

Tesla has become one of Wall Street’s most valuable companies not just because of its electric vehicles but also because of its AI initiatives, such as a robotaxi. That’s a tough business to assign a value to, according to UBS analysts led by Joseph Spak, and the “challenge is that the time frame and probability of success is not clear.”

At Alphabet, meanwhile, investors’ patience with the company’s big AI investments may also be running thinner.

Alphabet dropped 5% even though it delivered better profit and revenue for the latest quarter than expected. Analysts pointed to some pockets of weakness, including weaker growth in advertising revenue for YouTube than expected.

The larger challenge for Alphabet may have simply been how much its stock has already rallied, nearly 50% in the 12 months through Tuesday, on expectations for continual growth.

The Russell 2000 index of smaller stocks had leapt at least 1% in seven of the last 10 days but dropped 2.1% on Wednesday.

Smaller stocks had been jumping as Treasury yields eased on expectations that inflation is slowing enough for the Federal Reserve to begin lowering its main interest rate in September.

Treasury yields were mixed Wednesday after preliminary data suggested U.S. business activity is back to shrinking in manufacturing, though continuing to grow in services industries.

The overall data suggested a “Goldilocks” scenario, where the economy is not so hot that it puts upward pressure on inflation but not so cold that it veers into a recession. But Chris Williamson, chief business economist at S&P Global Market Intelligence, said some potentially concerning signals were also lying beneath the surface, including heightened uncertainty around November’s elections.

The yield on the 10-year Treasury rose to 4.28% from 4.25% late Tuesday.

The problem for Wall Street is that even if more stocks were to rise, they’ll need to do so more than Big Tech stocks are falling because of the group’s huge influence.

Nvidia, for example, fell 6.8%. That wasn’t as steep as Tesla’s drop, but it was still the single heaviest weight on the S&P 500 because its total market value tops Tesla’s. A 1% move for Nvidia packs more punch on the index than a 1% move for any company other than Microsoft or Apple.

In energy trading, benchmark U.S. crude lost 36 cents to $77.23 a barrel. Brent crude, the international standard, fell 37 cents to $81.34 a barrel.

Source: https://apnews.com/article/stocks-markets-rates-inflation-3f4ccd479801d93e8472b831400c25fb