US stock markets experienced a significant decline on Tuesday as the S&P 500 fell 1.4% and the Nasdaq composite dropped 2.2%, marking a sharp reversal from recent gains. The sell-off was primarily driven by a massive retreat in AI-driven technology stocks, with investors pulling back from companies that have seen dramatic value increases amid artificial intelligence technology frenzy. According to Business Standard, the benchmark index is coming off 11 weekly gains out of the last 12, led largely by technology stocks, but the Dow Jones Industrial Average, which is less influenced by tech stocks, gave up an early gain and closed just 0.1% lower. The selling largely targeted companies that have seen their values surge amid the AI technology boom, with their pricey stock values giving them more influence over the broader markets direction.
Market sentiment remained tied to ongoing diplomatic efforts between the US and Iran, with reports suggesting significant progress in peace talks. US Vice President JD Vance said they created a good foundation for a successful final deal, according to Business Standard. The proposed framework includes the formation of a committee and a mechanism to help end hostilities in Lebanon. Mediators Qatar and Pakistan said in a joint statement that "encouraging progress has been made, including the creation of a mechanism for further technical talks." The two sides have also agreed to establish a "de-confliction cell" involving the concerned parties and Lebanon to help ensure compliance with the cessation of military operations. Iranian Foreign Minister Abbas Araghchi said the talks in Switzerland had made "major progress" toward stabilising the broader regional situation.
Investor sentiment has shifted significantly toward Federal Reserve policy expectations, with Wall Street sees an 85% chance that the central bank will raise its benchmark interest rate this year, up from 60% a week earlier, according to CME Group data cited by Business Standard. The Federal Reserve has signaled that it could raise interest rates at least once before the end of the year, with traders now betting on a nearly 90% chance the Fed will raise its federal funds rate at least once by the end of the year, up from 57% just a week ago. The growing likelihood of interest rate hikes later this year has helped deflate the massive run-up in AI-related stocks, as traders worry that higher rates could hamper economic growth. The 10-year Treasury yield slipped to 4.50% from 4.51% late Monday, while the 2-year Treasury yield fell to 4.20% from 4.24% late Monday, though bond yields remain high amid inflation concerns.
Oil prices have eased amid negotiations between the US and Iran to end their war, with the price for a barrel of US crude for August delivery falling 0.9% to settle at $73.21, according to Business Standard. The September delivery price for a barrel of Brent crude, the international standard, fell 0.9% to settle at $76.80, with prices still above levels of roughly $70 per barrel before the war began. An end to the war could clear the Strait of Hormuz for oil tankers and allow for the undisputed resumption of deliveries from the Persian Gulf. However, Iran's military had said Saturday that it closed the Strait of Hormuz again, though U.S. Central Command has disputed that. Crude oil prices declined following the latest developments in the Middle East, with Brent crude futures falling 2% to around $79 a barrel, on track for their first decline in three sessions.
The tech sell-off was broad-based, with Micron Technology slumping 13.2% and Nvidia falling 4.1%, while Samsung Electronics slumped 12.3% in South Korea, as reported by Business Standard. SpaceX wavered in early trading then closed 1% higher, marking a recovery from its recent decline. The space exploration and artificial intelligence company had a soaring market debut less than two weeks ago and plans to raise money through a bond offering, partly to fund AI development. The days heaviest weights on the S&P 500 included drops of 5% for Alphabet, 4.7% for Amazon and 4.5% for Broadcom, with the VIX jumping to 21.51 representing a 39.7% daily spike. Many technology companies have been spending heavily on AI technology, and the potential for higher interest rates could stifle future spending and hurt prices for investments.
