(Bloomberg) — Wall Street got a reality check after a disappointing start of the megacap earnings season fueled concern the artificial-intelligence frenzy that has powered the bull market might be overblown.
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A selloff in big tech sent the S&P 500 to its worst day since December 2022, ending the best stretch without a 2% drop since the start of the global financial crisis. Losses were more pronounced in the Nasdaq 100, which tumbled over 3.5%. Alphabet Inc. slid 5% after sinking more resources into its drive to outmatch rivals in AI, with spending higher than analysts expected. Tesla Inc.’s profit miss and the Robotaxi delay spurred a 12% stock plunge.
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“Investors are finally waking up to all that AI spend and realizing it is much more of an expense right now rather than a revenue generator,” said Peter Boockvar at The Boock Report.
Wednesday’s session was another lesson in the “concentration risk” bears see as latent in a market whose upside has owed disproportionately to a narrow cohort of massive gainers. For a fourth straight session — and the 10th time in 11 days — the performance of smaller companies exceeded larger ones, evidence investor tastes have shifted from the megacap tech names that have come to dominate benchmark indexes.
The Treasury curve steepened on bets the Federal Reserve is close to cutting rates. Former New York Fed President William Dudley called for lower borrowing costs — preferably at next week’s gathering. For many analysts, such a move would be worrisome as it would indicate officials rushing to avoid a recession.
The loonie fell as the Bank of Canada cut rates, focused on “downside risks.” The yen hit the highest since May amid an unwind in carry trades.
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To Steve Clayton at Hargreaves Lansdown, this could be the year markets start talking about the “So-So Seven,” noting that results from Tesla and Alphabet are not enough to maintain their momentum.
“The market is…
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