Tech Stocks Plummet Amid Intensifying AI Concerns

The Canadian stock market faced significant declines as investor fears surrounding artificial intelligence (AI) disruptions intensified. Concerns over potential reductions in expected Federal Reserve interest rate cuts also contributed to the downturn. Key sectors like industrial and metal mining saw the largest losses.

Market Overview

The S&P/TSX composite index dropped by 788.91 points, a 2.4% decrease, closing at 32,465.28. This marks the index’s second consecutive day of losses, following a record high achieved just two days prior. Major Wall Street indices also reflected this trend, as sell-offs of technology stocks intensified.

Investor Sentiment

Michael Sprung, president of Sprung Investment Management, noted a growing apprehension among investors. He stated, “People are beginning to ask who will be the AI winners and losers.” The recent uptick in U.S. employment data, which had initially fueled optimism, began to wane as investors reevaluated the likelihood of imminent rate cuts.

Impact on Key Assets

• Gold prices fell by 3% due to diminished hopes for Federal Reserve interest rate cuts.
• The materials sector plummeted by 5.9%, heavily impacted by mining shares.
• Energy sector losses were notable, with a 1.7% drop as oil prices settled at $62.84 per barrel, down 2.8%.

Sector-Specific Performance

The industrials sector suffered an overall decline of 4%, driven by Mullen Group Ltd’s 8.9% drop after underperforming in quarterly earnings. Technology stocks in Toronto fell by 3.7%; Shopify Inc experienced a notable decline of 6.1%.

Financials also felt the impact, with Sun Life Financial Inc’s shares up 6.3% after beating earnings estimates, while Manulife Financial saw a 5.3% drop in profit and shares.

U.S. Market Reactions

The S&P 500 saw a decline of 1.6%, marking its second worst day since Thanksgiving. The Dow Jones Industrial Average fell by 669 points, or 1.3%, while the Nasdaq composite index dropped by 2%. Investors abandoned riskier sectors in favor of defensive options such as utilities and consumer staples.

Technology Sector Struggles

Concerns about transportation jobs further fueled market negativity, as a disappointing quarterly update from Cisco Systems resulted in a 12.3% decline for their shares. The Dow Jones Transport Average lost 4%, driven by significant drops in companies like CH Robinson and Landstar.

Additionally, software company AppLovin saw its shares plummet by 19.7%, despite reporting stronger-than-expected profit figures. AppLovin’s CEO highlighted a disconnect between market sentiment and the actual performance of his business.

Looking Ahead

As the markets react to the ongoing economic landscape, attention now turns to the upcoming January Consumer Price Index report due this Friday. Investors continue to monitor the landscape for impacts on interest rates and potential disruptions from AI technologies.