Global markets took a sharp hit overnight, with major averages plummeting on Tuesday as a tech sell-off gained momentum. The S&P 500 and Nasdaq Composite indices were lower, with the broad market index dropping 1.44% to 7,365.46 and the tech-heavy Nasdaq sliding 2.21% to close at 25,587.04.
The Dow Jones Industrial Average also ended down, falling by 45.87 points or 0.09%, to 51,666.84. However, some major averages managed to recover from their lows as tech stocks outside of chipmakers such as Microsoft and Amazon rose, along with defensive stocks like Walmart, Procter & Gamble, and Johnson & Johnson.
International Business Machines shares surged 5% following an upgrade to overweight at JPMorgan, while Sherwin-Williams and Merck also saw gains. However, the selling continued globally, with South Korea's Kospi leading regional losses. Memory chip leader SK Hynix closed down more than 12%, contributing to a decline of almost 10% in the South Korean benchmark.
The tech sell-off has been ongoing since Monday, when the Nasdaq shed 1.3% largely due to shares of Alphabet. The selling then picked up globally, with Japan's Nikkei 225 declining 3.55%. US-traded Micron Technology followed suit on Tuesday, falling by 13%, while Sandisk and Seagate Technology also dropped 13% and more than 5%, respectively.
Intel pulled back 6%, while Advanced Micro Devices and Qualcomm lost almost 6% and 8%, respectively. The State Street Technology Select Sector SPDR ETF (XLK) fell 4%, and the VanEck Semiconductor ETF (SMH) dropped 7%. Meanwhile, SpaceX moved up about 1%.
Andrew Slimmon, a senior portfolio manager at Morgan Stanley Investment Management, attributed the sell-off to the "zeitgeist of the momentum traders" and argued that it was a healthy correction. He noted that AI beneficiaries were experiencing a sharp sell-off, but added that they were not expensive, merely crowded.
The sell-off has been driven by concerns over high-profile AI talent departures at Alphabet, which saw its shares drop 1% on Tuesday. The company's shares tumbled 5% on Monday due to these concerns. Slimmon's comments suggest that the tech sector is experiencing a correction, but one that is ultimately healthy for the market.
The selling has been widespread, with South Korea's Kospi leading regional losses and Japan's Nikkei 225 declining 3.55%. The State Street Technology Select Sector SPDR ETF (XLK) fell 4%, while the VanEck Semiconductor ETF (SMH) dropped 7%. Despite the sell-off, some stocks have managed to buck the trend, with International Business Machines shares surging 5% following an upgrade to overweight at JPMorgan.
The market's reaction suggests that investors are becoming increasingly cautious about the tech sector, particularly in relation to AI. While Slimmon argued that the sell-off was healthy, others may be more concerned about the implications for the broader market. As the market continues to fluctuate, one thing is clear: the tech sector is experiencing a correction, and it remains to be seen how long this trend will continue.
