ASX set to slip, China threat rattles Wall Street

All the worries sent investors toward bonds, which can be safer investments than any stock. The rush pushed the yield of the 10-year Treasury down to 4.54 per cent from 4.62 per cent late on Friday.
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It’s a sharp turnaround for the AI winners, which had soared in recent years on hopes that all the investment pouring in would remake the global economy and deliver gargantuan profits along the way. Such stellar performances also raised criticism that their stock prices had gone too far, too fast.
Before Monday’s drop, Nvidia’s stock had soared from less than $US20 to more than $US140 in less than two years, for example.
Other Big Tech companies had also joined in the frenzy, and their stock prices had benefited too. It was just on Friday that Meta Platforms CEO Mark Zuckerberg was saying he expects his company to invest up to $US65 billion this year and grow its AI teams significantly, while talking up a data centre in Louisiana that will be so large it would cover a significant part of Manhattan.
A small group of such companies has become so dominant that they’ve come to be known as the “Magnificent Seven.” These companies — Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla — alone accounted for more than half the S&P 500’s total return last year, according to S&P Dow Jones Indices.
Their immense sizes in turn have also given them huge sway over the S&P 500 and other indexes that give more weight to bigger companies. It shows the risk of betting too much on just a few winning stocks, something that market experts call “concentration risk.”
That “can feel good when those few names or ideas are on the ascent, but it is even more dangerous when disruptions take place,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Still, he suggested not overreacting to Monday’s sharp swings. “It is possible that the news out of China could be overstated and then we could see a reversal of the recent market moves,” Jacobsen said. “It is also possible that the news is true, but then that would present new investment opportunities.”
More big swings may be ahead. Apple, Meta Platforms, Microsoft and Tesla are all on the schedule this upcoming week to report how much profit they made at the end of 2024.
The pressure is on companies to keep delivering strong profits, particularly after a recent jump in Treasury yields, even with Monday’s decline. When bonds are paying more in interest, they put downward pressure on stock prices.
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So far, big US companies have been reporting better results than analysts expected. AT&T became the latest on Monday, and its stock rose 6 per cent.
In stock markets abroad, movements for broad indexes across Europe and Asia weren’t as forceful as for the big US tech stocks. France’s CAC 40 fell 0.3 per cent, and Germany’s DAX lost 0.5 per cent.
In Asia, stocks edged 0.1 per cent lower in Shanghai after a survey of manufacturers showed export orders in China dropping to a five-month low.
The Federal Reserve holds its latest policy meeting later this week. Traders don’t expect recent weak data to push the Fed to cut its main interest rate. They’re virtually certain the central bank will hold steady, according to data from CME Group.
AP
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