The Nasdaq 100 lost more than $2 trillion in market value in October as investors pulled back from AI stocks. Reuters reports that wars, rising debt and higher borrowing costs had already strained markets, while AI spending had propelled stock markets to record highs.
More than $2 trillion in market value was wiped from the tech-heavy Nasdaq 100 last month, as Big Tech's earnings intensified investor scrutiny of whether the cash invested can generate returns quickly enough. The jitters appeared abruptly in October, when investors rushed out of AI stocks and into safe-haven bonds.
Treasury yields drop, but strains persist
Bond yields, which move inversely to price, fell from multidecade highs. The benchmark 10-year Treasury fell almost 20 basis points on October 22, its biggest daily fall since early 2023.
The 10-year yield is still hovering around 5%, a threshold some investors see as a risk to broader financial stability. Meanwhile, French bond yields soared to levels last seen during the 2012 euro zone debt crisis, and Japanese bond yields recently hit 30-year peaks.
AI spending has shielded the S&P 500
Much of the market's resilience comes from AI spending. The so-called hyperscalers, half a dozen US tech firms, are poised to invest $1.2 trillion next year, according to Danske Bank estimates.
Tech and AI stocks compose over 40% of the S&P 500 and account for much of the index's 70% rise over the past five years. The big-cap index has lost 3% from its early October peak, while the Russell 2000 small-cap index is down nearly 8% from its August peak.
Earnings are also strong. In the US, 84% of S&P 500 companies that have reported third-quarter results so far have beaten consensus estimates, according to LSEG data.
Oil and debt raise the stakes
The Iran war has disrupted oil supplies. At $105 a barrel, oil is up almost 75% so far this year. Total global debt stands at over $350 trillion, a record, according to the Institute of International Finance.
Euro-area inflation at 3.8% is above its 2% target. Reuters reports that should AI spending falter, the shockwaves could ripple worldwide. According to geopolitical strategist Tina Fordham, echoing Warren Buffett's remark about who has been swimming naked when the tide goes out: "The tide is AI," she said.
Source: Investing.com
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