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Market Mood Dips as Wall Street and Asian Indices Slide

Plus500 | Thursday 03 August 2023

On Wednesday, August 2nd, stock markets from New York to Tokyo hit a downtrend. Despite the U.S. economy’s strong growth in the second quarter, traders entered into a negative market mood yesterday. Let’s take a closer look:

An image of falling trading charts

Wall Street Hits the Skids

Key American Indices experienced a significant selloff on Wednesday, with the Nasdaq (US-TECH 100) suffering its worst day since February, triggered by Fitch's downgrade of the long-term rating for the U.S. Fitch, a major ratings agency, cited the deteriorating quality of governance in the United States as one of the reasons behind its decision. Following this news, the tech-heavy index plummeted over 2%, while the S&P 500 (USA 500) dropped by nearly 1.4%, and the Dow Jones Industrial Average (USA 30) fell by just under 1%.

Fitch Ratings downgraded the U.S. long-term foreign currency issuer default rating from AAA to AA+ due to anticipated fiscal deterioration over the next three years. The last time the U.S. received a major ratings downgrade was in 2011 when Standard & Poor's lowered the rating to AA+ from AAA.

According to some, Wall Street investors may be using the Fitch downgrade as a reason to take profits. However, yesterday’s stock market falls could have been part of a foreseeable trading pattern following a strong run in recent months. 

The selloff on Wednesday interrupted the months-long uptrend, which was mainly drivenby growth stocks. Technology stocks were among those with the largest drops, partly due to the 10-year Treasury yield reaching its highest level since November. Mega-cap tech companies like Amazon (AMZN), Alphabet (GOOG), and Microsoft (MSFT), all experienced losses over the course of the trading day, by 2.6%, 2.4%, and 2.6% respectively.

Another drag on Wall Street results yesterday may have been semiconductor chip industry leader Advanced Micro Devices’ (AMD) precipitous share value drop. With the market demand for personal computers on the decline, this firm’s revenues dropped in the second quarter, and relatively negative guidance for the near-term contributed to AMD’s 7% fall yesterday.

However, this selloff might also be seen as a needed market shift from technology stocks into defensive sectors. Some market experts hold that the market is still investing money, and that the selloff has allowed some adjustments without upsetting the overall upward trends seen in the tech sector since the beginning of the year. (Source:CNBC)

Slide Spreads to Asia

Wall Street’s Wednesday drops were not limited to American shores. By the ring of the closing bell yesterday, several major Asian Indices had registered losses in value. The Tokyo-based Nikkei 225 (Japan 225) fell by nearly 1.7%, while Hong Kong’s Hang Seng Index (Hong Kong 50) dropped by almost 2.5%.

Tech stocks were especially affected yesterday, with (JD) and Baidu (BIDU) dropping by almost 4.5% and 4.3% respectively by the end of trading. These falls could have come on the back of further restrictions proposed by China’s ruling Communist Party which seek to limit smartphone use among the nation’s youth. Increasing government oversight of China's homegrown tech industry has been a persistent trend in recent years, and it is yet to be seen how this could affect Asian markets going forward.

Whether yesterday’s stock trends are simply a market correction or a harbinger of a longer term shift in market mood has yet to be seen. Market watchers will have to wait and see how all these factors develop over the course of the coming trading days.

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