Stockholm Stock Exchange managed to remain in positive territory during Wednesday morning trading, albeit by a narrow margin. A quarter of an hour after the market opened, the broad OMXSPI index rose by 0.1%, following a decline of more than 1.2% the previous day.
However, beyond the relatively modest movements of the Swedish stock market, financial markets have been in turmoil in recent days. The turmoil appears to have originated in South Korea, where semiconductor manufacturer SK Hynix issued a press release that, under normal circumstances, would not have raised many eyebrows. The company announced plans to focus on expanding in a different segment of the computer memory market, rather than the specialized components primarily used for AI.
In its justification, the company cited a significant supply shortage in the regular memory market. However, this announcement reverberated through the stock exchanges, where high valuations in the technology and AI sectors had already raised concerns over the past month. All major Wall Street stock indices closed in the red on Tuesday. The index for the American semiconductor sector, central to the AI-driven market growth, fell by nearly 8%. The composite Nasdaq index, which has a particularly high concentration of technology stocks, decreased by 2.2%.
Causes of turbulence and analysts’ views
The space and AI company SpaceX, whose record initial public offering (IPO) in early June fueled speculation about whether the AI rally is a bubble, temporarily dipped below its opening price from the first trading day after a significant drop earlier in the week. However, the shares managed to recover and eventually closed in positive territory. Early Wednesday morning, Asian stock exchanges appeared to show signs of recovery, with the South Korean exchange rising after one of its most dramatic falls in history the day before. Yet, this recovery stalled in the early hours, and stock indices began to decline again.
One contributing factor is that investors have started to factor in higher interest rates in the future, particularly in the USA, where new Federal Reserve Chairman Kevin Warsh surprised some observers by placing more emphasis than expected on high inflation during his first interest rate announcement a few weeks ago. Higher interest rates typically exert pressure on the stock market. Growth sectors, such as technology companies, often suffer particularly, especially during investment cycles when many listed companies increase borrowing to finance initiatives, such as investments in AI.
The combination of falling stock exchanges and declining oil prices, which have dropped as cargo ships have resumed passing through the Strait of Hormuz in the Persian Gulf, may contribute to stabilizing interest rates. Even among analysts who see the risk that AI-driven growth is a bubble, many predict that stock exchanges may continue to rise for some time. Others view this week’s market decline as a temporary setback.
“There have been periods when earnings and stock prices have caught up with each other, and we believe this is such a period. Prices will start to rise again,” said Julian Emanuel, chief equity strategist at investment bank Evercore, in an interview with Bloomberg. The first test will come on Thursday when new inflation data is expected to show a slight increase in core inflation in the USA for May. Before that, the American semiconductor company Micron Technology is set to present quarterly figures, which are viewed as a potential turning point.
Source: Dagens Nyheter