After consecutive record highs, global stock markets paused their advance, with a sharp selloff in technology stocks being the primary driver. Investors are reducing their positions in tech stocks that had long led the market rally. Growing concerns suggest that the rally since April may have moved too fast and too far.
On Wednesday, August 20, S&P 500 futures fell over 0.2%, European stocks opened mostly lower, Asian markets declined 0.8%, with tech companies like TSMC and SoftBank leading the decline. Among other assets, the 10-year US Treasury yield rose 1 basis point to 4.32%, oil prices gained 0.6% recovering some ground. The US Dollar Index extended its three-day winning streak. The Reserve Bank of New Zealand cut rates by 25 basis points and hinted at further easing room, weakening the New Zealand dollar while bonds rallied.
Federal Reserve Chairman Powell will speak at Jackson Hole on Friday, with traders watching for clear signals about a September rate cut.
Here are the key asset movements:
US stock futures declined across the board, with S&P 500 and Dow futures both down over 0.2%, while Nasdaq 100 futures fell over 0.5%. Europe's Stoxx 50 index opened down 0.46%. Germany's DAX index fell 0.72%. The UK's FTSE 100 declined 0.11%. France's CAC 40 dropped 0.34%. Japan's Nikkei 225 closed down 1.5%. The Topix index fell 0.6%. South Korea's Kospi declined 0.7%. The US Dollar Index remained essentially flat, the euro fell slightly 0.1%, the yen rose over 0.2%, and the pound gained 0.1%. US Treasury yields rose broadly, with the benchmark 10-year yield up less than 1 basis point. Spot gold rose over 0.2%. Spot silver fell over 0.5%. WTI crude gained over 0.7% to above $62.80. Brent crude rose over 0.8% to above $66.30. Bitcoin fell over 1.2% in 24 hours to below $113,700, while Ethereum declined over 1.3%.
High Market Valuations Trigger Caution, Tech Stocks Continue Decline
Tech stocks continued falling in after-hours trading, with NVIDIA down 0.3%, Intel declining 1.2%, and Palantir dropping 2.7% - marking its fifth consecutive day of losses, the longest losing streak since March. Despite this, Palantir remains the best-performing stock in the S&P 500 this year, up over 108% year-to-date. Nasdaq 100 futures fell over 0.5%.
Bloomberg market strategist Mark Cranfield noted that heavy selling in NVIDIA ahead of next week's earnings report has become the biggest driver of the global tech stock decline. Given NVIDIA's massive gains since April, it now appears to be creating headwinds for near-term market performance. This suggests growing market concern about NVIDIA's elevated valuation, with pre-earnings selling sentiment spreading across the entire tech sector.
VanEck cross-asset strategist Anna Wu stated: "As valuations are pushed to historic highs, traders and hedge funds often choose to exit." She believes the current market decline is more about cautious positioning ahead of the Jackson Hole symposium and profit-taking behavior.
Bank of America strategist Michael Hartnett's team recently pointed out that the rally in the "Magnificent Seven" US stocks since April may have gone too far. Hartnett has repeatedly warned about bubble risks in the US stock market this year.
Strategas's Nicholas Bohnsack commented: "When markets are rising, everything seems easy and bullish arguments are hard to question." However, he added: "While the uptrend may still be the primary trend, we're increasingly concerned that traditional risk assets like stocks and bonds appear to be 'perfectly priced' with very little room for error."
Dollar Index Extends Three-Day Rally
The US Dollar Index extended its three-day winning streak, now trading essentially flat.
The yen rose modestly by about 0.2%.
WTI crude gained over 0.7%.
Markets Bet on Fed September Rate Cut as "Done Deal"
Meanwhile, markets are closely watching Fed Chairman Powell's upcoming speech at the Jackson Hole symposium. Bond market investors are almost certain the Fed will cut rates by 25 basis points in September and cut once more by year-end.
Investors are waiting to see whether Powell will confirm the market's pricing expectations - that cuts are indeed coming - or whether he will remind markets that new data could emerge before the next policy meeting that might change the Fed's assessment. Additionally, markets want more clues about the rate-cutting path through 2026 from Powell's remarks.
HSBC Asia Pacific equity strategy head Herald van Der Linde stated: "If we get some signals that the Fed is more inclined toward rate cuts, that would again provide support to markets." This means if Powell hints at future rate cuts in his speech, investor confidence could strengthen and stocks might rebound.
President Trump again criticized Fed Chairman Powell on his Truth Social platform: "There are no signs of inflation now, and all signs point to significant rate cuts needed. Powell's failure to cut rates is hurting the real estate industry."
On the geopolitical front, Trump is also actively pushing for a ceasefire in the Russia-Ukraine war. He called on Russian President Putin and Ukrainian President Zelensky to show some "flexibility," encouraging them to hold a bilateral summit soon to advance an end to the war. This indicates Trump is accelerating his intervention in the Russia-Ukraine conflict, hoping to facilitate peace negotiations between the two sides.
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