Wall Street suffered a steep drop yesterday, with the tech-heavy Nasdaq Composite tumbling 2.21% and the S&P 500 falling 1.44%. Investor anxiety is spiking over high valuations and the staggering capital expenditure big tech companies are pouring into AI infrastructure. Major hardware and memory makers like Micron (down 13.2%) and Qualcomm (down 8%) took massive hits, while Nvidia dropped 4.1%, slipping back below the $5 trillion market value threshold. Investors are highly focused on Micron’s earnings report, which drops later today after the close and will likely serve as a major health check for AI hardware demand.
Adding pressure to equities is a hawkish shift from the Federal Reserve. Last week, the Fed (under new chair Kevin Warsh) signalled potential interest rate hikes later this year to counter inflation risks stemming from recent Middle East conflicts. Bond yields remain elevated, with the benchmark 10-year Treasury yield sitting around 4.5%. This fear of higher interest rates was supported by better than expected US manufacturing and services PMIs, the economy will become stronger and this will be positive for the stock market. But in the short term the fear of higher interest rates will persist so the direction of the stock market is down in the short term, up in the long term.