Market Turmoil: Stocks Plunge, Oil Prices Dip, and Tech Giants Brace for Impact

Market Volatility and Tech Sector Downturn: The Week in Review

This week saw a significant downturn in the stock market, with the Nasdaq experiencing its worst week since 2022. The upcoming AI suite for iPhones by Apple has the potential to impact AI app development, created a buzz by analysts at TD Cowen, foreseeing accelerated growth within Apple's ecosystem.

U.S. crude oil prices took a sharp dip to their lowest since June 2023 while OPEC+'s failure to assure market stability added to the concerns. Meanwhile, Charles Schwab issued an apology for technical glitches during the August 5 sell-off, vowing stringent reviews to prevent future disruptions.

In light of the market situation, experts are suggesting the inclusion of international stocks in investment portfolios for diversification, especially given their outperformance in the current landscape, marked by a reduced exposure to AI plays. The financial giant, Goldman Sachs, has made predictions of three sequential rate cuts by the year-end, with the primary cut expected in September.

The technology and energy sectors faced prominent losses this week, with leading chipmakers like Broadcom and Nvidia witnessing substantial declines. Despite Broadcom's cautious revenue outlook, Goldman Sachs maintains a buy rating, regarding the downturn as temporary.

The VanEck Semiconductor ETF also experienced its worst week since March 2020, attributed to major chip stocks' decline. The S&P 500 and Dow Jones are poised for their worst weeks since March 2023, influenced by a weak jobs report. New York Fed President John Williams has thrown his weight behind interest rate cuts, and the U.S. economy added fewer jobs than anticipated in August.

Berkshire Hathaway has been consistently reducing its stake in Bank of America, bringing it down to 11.1%. Notable after-hours trading activities involved companies like DocuSign, which exceeded earnings estimates, and UiPath, which expanded its stock repurchase program.

Key Takeaways

• Apple's forthcoming AI suite holds the potential to enhance iPhone-based generative AI app development.
• OPEC+'s inability to reassure the market led to a significant drop in U.S. crude oil prices.
• Charles Schwab offered apologies for technical issues on August 5, pledging thorough reviews to prevent reoccurrence.
• Investment advice leans towards diversifying with international stocks due to their outperformance.
• Goldman Sachs foresees three consecutive 25-basis-point rate cuts by the close of 2024.

Analysis

The bearish trend observed in the tech sector, driven by apprehensions about AI hype and fluctuations in the energy market, has had a ripple effect on global markets. While Apple's AI suite could potentially stabilize tech stocks, broader concerns persist owing to OPEC+'s uncertain supply and demand dynamics, as well as the weakened U.S. job data. In the short term, investors may seek refuge in safer international stocks, while expecting the rate cuts to inject momentum into the economy in the long run. Key players such as Broadcom and Nvidia may encounter short-term losses, but an optimistic outlook from Goldman Sachs indicates a potential recovery. Berkshire Hathaway's divestment from Bank of America suggests wider concerns within the financial sector.

Did You Know?

• Generative AI App Development: Generative AI refers to the capability of artificial intelligence systems to create new content based on the data they have been trained on, be it text, images, or even code. In the context of Apple's AI suite for iPhones, this could signify the potential for developers to create apps capable of generating unique content or performing creative tasks using AI, thereby enhancing user experience and opening up new markets for innovative applications.
• OPEC+: OPEC+ constitutes an alliance between the Organization of the Petroleum Exporting Countries (OPEC) and various non-OPEC oil-producing nations, including Russia. The group collaborates to regulate oil production levels with the aim of influencing global oil prices. Their failure to assure the market about supply and demand often results in oil price volatility, as evidenced by the recent downturn in U.S. crude oil prices.
• Basis Point (BPS): A basis point is a financial measurement unit used to describe the percentage change in the value or rate of a financial instrument, where one basis point is equivalent to 0.01%. In the context of Goldman Sachs' prediction of three consecutive 25-basis-point rate cuts, it indicates an expected reduction in interest rates by 0.25% each time, culminating in a total reduction of 0.75% by the end of the year.