Drama on Wall Street: Giant stocks plunge ahead of reports, investors rotate capital

Uzi Levi, Director of Securities Research at Mizrahi Tefahot Bank, conducted an analysis of market activity over the last 24 hours on Wall Street.

"Trading on Wall Street demonstrated an interesting change in investor appetite: while chip and technology stocks continued to weaken, financial stocks strengthened and helped the Dow Jones finish with a gain of about 0.3%, despite declines of about 0.8% in the Nasdaq and about 0.3% in the S&P 500. Among the prominent stocks, Nvidia fell 2.9%, Micron about 5.8%, and Broadcom about 2.6%, with stocks related to AI infrastructure being among the notable decliners."

The weakness in chips does not stem from a single point event, but from an accumulation of several concerns. Investors are arriving at the Nvidia reports on Wednesday with very high expectations, so good results alone may not be enough. The market is looking for further proof that the massive investments in AI infrastructure continue to grow at a pace that justifies the high valuation of chip companies. At the same time, the rise in financing costs and concerns regarding the amount of debt required to build AI infrastructure are adding pressure to the sector.

On the other hand, financial stocks benefited from a rotation of funds into sectors that are perceived at this stage as more attractive in terms of valuation and risk. JPMorgan rose about 1.4%, while Visa jumped about 3% to a new record closing high. The gains in financials were particularly prominent against the backdrop of the weakness in technology and helped the Dow Jones rise.

In the bond market, there was also a development that supported the atmosphere: the yield on the 10-year US Treasury bond fell to about 4.70%, and the yield on the 30-year bond fell to about 5.23%. The decline in yields slightly eased the pressure on the stock market, after the rise in yields in recent weeks was one of the factors that particularly hurt technology and chip stocks.

Bottom line: at this stage, it is more about rotation than a flight from the stock market. Investors are reducing exposure to some of the AI stocks that enjoyed significant gains and high valuation levels, and are moving some of the money to other sectors, including financials. However, the rotation is not yet an established trend. Nvidia's reports on Wednesday could quickly change the picture, especially if the company presents strong demand and provides a forecast that justifies the high expectations.