Wall Street traders drove stocks down from the brink of record highs as a slide in several tech giants overshadowed optimism about progress in peace talks between the US and Iran. Oil retreated.
Megacap Losses Lead Market Decline
Equities turned lower as Alphabet Inc. led losses in megacaps. The Nasdaq composite fell one per cent. SpaceX sank 10 per cent as Elon Musk’s company is selling investment-grade bonds for the first time, part of what’s expected to be a massive borrowing spree to fund AI ambitions. A rise in bond yields also weighed on sentiment. West Texas Intermediate hovered near US$73 on hopes for a recovery in flows from the Persian Gulf.
AI Boom Fuels Debt Wave
Expectations for a lasting peace deal in the Middle East, the revival of the AI trade and solid corporate earnings have fuelled an almost 20 per cent surge in the U.S. equity benchmark from war-driven lows. While geopolitical developments are likely to remain a key source of volatility in the near term, shifts in investor confidence regarding the durability of the AI rally may also lead to bouts of market swings, according to Ulrike Hoffmann-Burchardi at UBS Chief Investment Office.
SpaceX’s bond sale is the latest in a wave of deals from companies driving the AI boom. Alphabet, Amazon.com Inc. and others have raised more than US$300 billion of debt tied to AI since November across multiple credit markets. The rocket firm is seeking to raise at least US$20 billion, Bloomberg reported.
Concerns Over AI Spending Returns
“The issue that stands out the most is the idea that the hyperscalers continue to receive an extremely low return on investment on their colossal level of spending on AI,” said Matt Maley at Miller Tabak. “Another big concern surrounds the issue of ‘circular investments,’ where companies invest in each other, while also committing to buying each other’s products.”
Technology stocks will extend their rally for at least another couple of quarters as AI infrastructure spending accelerates beyond the pace of the past two years, Columbia Threadneedle Investments’ Tiffany Wade told Bloomberg Television.
US-Iran Peace Talks Show Progress
On the geopolitical front, the United States issued a 60-day license allowing Iran to sell oil on the international market, giving Tehran an economic lifeline as the two adversaries continued talks for a permanent peace deal. Vice President JD Vance described the first round of negotiations as “very very good” and said Iran had agreed to allow nuclear inspectors back into the country. But Iranian officials, who also cited progress, challenged that claim, saying Vance’s assertion was “false and does not reflect reality.”
UK Politics Sees Leadership Change
Elsewhere, Andy Burnham appears set to become the UK’s seventh prime minister in a decade after Keir Starmer laid out a timeline for his own departure and potential rivals backed a quick transition to the popular Manchester politician. While markets showed little reaction to the resignation, they were buoyed by reduced odds of a leadership contest that could have prolonged uncertainty.
