New York, USA – US stock markets plunged as disappointing economic data, increased market volatility, and changes in central bank policies overshadowed earlier optimism driven by artificial intelligence prospects and strong corporate earnings.
Between July 11, 2024, and August 8, 2024, US stocks faced a downturn influenced by a combination of economic indicators, central bank decisions, and evolving investor sentiment. The Cboe Volatility Index (VIX), a gauge of Wall Street’s anxiety, surged from mid-teens to over 65 on August 5th. This spike in volatility followed disappointing US economic data, including a drop in the Institute for Supply Management’s manufacturing index and a weaker-than-expected July jobs report, reigniting concerns about a potential recession. Speculation arose that the Federal Reserve may have missed an opportunity to lower interest rates, leading market participants to anticipate more aggressive rate cuts in the near future.
The situation was complicated further by a rate hike from the Bank of Japan, strengthening the yen and prompting the unwinding of the yen carry trade. This strategy, where investors borrow in yen to invest in higher-yielding assets such as US tech stocks, may have exacerbated the selling pressure on these stocks, contributing to the broader market decline. This sell-off marked a stark shift from the market’s recent highs, fueled by optimism surrounding artificial intelligence and strong corporate earnings. Despite reaching a record high just a month prior, the sudden market reversal underscored the risks of an overvalued and overly concentrated market, especially as investors moved away from mega-cap growth stocks amid rising economic uncertainties.
During July, the BUZZ NextGen AI US Sentiment Leaders Index returned 0.51%, compared to a 1.22% return for the S&P 500 Index in the same period. Year-to-date, the BUZZ Index slightly lagged behind the S&P 500 with returns of 14.03% and 16.70%, respectively, by the end of July.
Amid the widespread equity sell-off in the recent period, the BUZZ Index saw only a few stocks contribute positively to returns, with just 17% of the Index’s holdings adding to performance. Notable among these were shares of PayPal Holdings Inc and Palantir Technologies Inc, which saw increases after announcing strong second-quarter earnings reports. PayPal reported better-than-expected revenue and earnings for the quarter, upgrading its full-year earnings outlook in anticipation of further growth. Palantir’s stock surged as the company raised its annual forecasts on the back of robust demand for AI software and successes in its military business.
Semiconductor stocks led the declines in the BUZZ Index during the period, with major players like Advanced Micro Devices Inc, Intel Corp, Micron Technology Inc, and Nvidia Corp experiencing significant drops averaging nearly 28%. Geopolitical tensions and valuation concerns prompted the sector’s downturn, exacerbated by former President Donald Trump’s comments suggesting Taiwan should self-fund defense against China, a critical center for the global chip industry. Reports of the Biden administration mulling stricter controls on chip exports to China added to market pressures. Investor optimism around AI had previously drawn them to semiconductor stocks, but the current pullback signals a period of reassessment and caution in the sector.
(THE ARTICLE CONTINUES WITH DESCRIPTIONS OF TOP AND BOTTOM BUZZ INDEX CONTRIBUTORS, BUZZ INDEX REBALANCE HIGHLIGHTS, AND ADDITIONAL IMPORTANT DISCLOSURES AND DISCLAIMERS.)
