S&P 500 futures were flat ahead of the New York market open this morning, suggesting traders may be temporarily satisfied after the stock market’s disastrous performance over the past few days. The index fell 0.51% yesterday to close at 6,882 points, having spent much of the last month hovering around 7,000 points.
Global markets were flat or down this morning, with the worst performer being South Korea’s KOSPI, which fell 3.86%.
The damage is coming from the tech and software industries as investors begin to realize that the promise of artificial intelligence isn’t all sunshine and roses. Until recently, the market assumed that businesses would be buoyed by significant capital expenditures (capital expenditures) in artificial intelligence, which would generate new efficiencies and greater productivity, ultimately leading to higher revenues and earnings per share. Over the past few days, however, traders have reacted to the idea that AI also has the power to destroy the revenue of companies that rely on selling traditional software that could be replaced by AI.
According to Bloomberg, as much as $1 trillion was wiped off the market value of software companies yesterday. Alphabet closed nearly 2% lower yesterday and fell a further 2.53% overnight after revealing plans to double artificial intelligence capital spending during an earnings call. Alphabet shares took a beating despite better-than-expected revenue growth, suggesting the company’s ad sales will never be cannibalized by consumer adoption of artificial intelligence, including its own Gemini AI chatbot and AI models in Google Search.
That’s a problem because until recently, the S&P 500’s performance was influenced by tech stocks like Alphabet. “The 10 largest companies will account for nearly 41% of the S&P 500’s total weight by the end of 2025,” RBC Wealth Management said.
But the data shows that this confusion is mostly a purely technical phenomenon. The equal-weighted S&P 500 (a nominal index that values each of the 500 companies equally rather than by total market capitalization) actually hit an all-time high this morning as the non-tech companies within it performed quite well.
“Tech stocks have been squeezed sharply, but many broader indexes remain largely firm,” Jim Reed and his team at Deutsche Bank told clients this morning. “There were 363 gainers in the S&P 500 [yesterday]which is actually the most in two weeks. “
People are buying stocks, but not tech stocks.
So who is behind this selective buying? Axios said one theory is that retail investors like to buy dips. Retail buyers – regular people who trade on their own accounts – have been dubbed “dumb money” by institutional investors on Wall Street in the past because they historically wait too long to enter bull markets and sell too late when entering bear markets, which is the opposite of what you want to do.
