U.S. Stocks Decline as September Begins, Investors Retreat from Chips – Reuters

Wall Street Experiences Significant Decline Amidst Tech Stock Sell-Off

On Tuesday, major indices on Wall Street faced a sharp decline, with the S&P 500 falling over 2% and the Nasdaq dropping more than 3%. Investors grew cautious about the potential of AI technology, leading to a broader market sell-off that intensified after disappointing economic data was released. Both the benchmark and traditional indices recorded their largest daily losses since early August.

The chip sector took a noticeable hit, highlighted by AI leader Nvidia’s nearly 10% drop, while Wall Street’s chip index plummeted by 8%. Investor sentiment was further dampened by the historical volatility of September, often cited as one of the least favorable months for stock performance.

Andrew Graham, founder and managing partner at Jackson Square Capital, remarked, “Nvidia didn’t see a post-earnings rally, which may have prompted investors returning from holidays to sell. Although this reason seems peculiar, it is part of the current narrative. Additionally, Nvidia had been relatively stable for months following its second-quarter earnings release, but the recent sell-off has affected market sentiment, creating technical support around $95 a share." He noted that in the lifecycle of tech innovations, periods of disillusionment are common, suggesting that we might be witnessing an early stage of such a phase with AI.

Michael Arone, chief strategist at State Street Global Advisors, added, “The recent earnings from Nvidia fell short of perfection, which spurred selling. The S&P has increased by 20% as of August, and this decline offers a chance for profit-taking in the tech sector, especially as valuations remain elevated and growth rates begin to decelerate. There’s rising skepticism regarding the expected returns from increased AI spending.”

Arone reflected on historical trends, stating, "September has consistently underperformed for stocks over the past several years. As we head into a typically weaker period for the market, it’s likely we’ll see a rotation away from technology stocks, paving the way for broader market leadership. Falling interest rates and inflation could help realign earnings growth across sectors."

Sam Stovall, chief investment strategist at CFRA, commented, “There wasn’t a specific trigger for today’s selling; instead, it appears investors are reacting to seasonal pressures and potential declines expected in election years. Many positioned themselves to take profits on stocks that have performed well.”

Investor concerns were echoed in Dennis Dick’s remarks, stating the decline in Nvidia’s shares appeared linked to the recent earnings report, which did not meet high expectations. Furthermore, many investors seem to be using this market downturn as an opportunity to take profits, particularly in the semiconductor space, which has seen strong performance.

Stephen Massocca of Wedbush Securities noted the strange dichotomy of market behavior, saying, “Despite the lack of impactful news, the market dropped significantly.” He pointed to Nvidia’s high valuation, indicating that while the company had a good quarter, it still remains vulnerable due to elevated prices.

Overall, while the tech sector has experienced a steep drop, it remains true that these stocks have had substantial gains throughout the year, making any downturn particularly noticeable. Investors are advised to remain cautious and manage their exposure as we head into a volatile season marked by historical trends and potential economic uncertainties.