Asian shares broadly retreated on Wednesday, following a similar downward trend in the U.S. stock market, as escalating bond yields exerted significant pressure on equities and other investment classes. The AI-driven rally that had propelled technology shares to record highs began to falter under the weight of these market dynamics.
Bond Market Pressure Mounts
The primary driver behind the market’s unease appears to be the persistent climb in bond yields. This trend is largely attributed to the ongoing conflict with Iran, which has fueled worries about prolonged periods of higher inflation. As bond yields rise, they present a more attractive alternative to riskier assets like stocks, thereby diminishing their appeal.
In Japan, the benchmark Nikkei 225 index saw a notable decline, losing 1.2% to close at 59,834.15. The yield on the 10-year Japanese government bond, while experiencing a slight dip to just under 2.8%, remained at its highest level since 1997, underscoring the broader trend of rising yields.
The U.S. dollar traded at 159.00 Japanese yen, a marginal decrease from its previous level of 159.09 yen. The euro also experienced a slight dip, trading at $1.1601 compared to $1.1608.
Regional Markets Follow Suit
Chinese markets also registered losses. Hong Kong’s Hang Seng index fell by 0.6% to 25,635.82, while the Shanghai Composite index shed 0.5% to settle at 4,148.16. Australia’s S&P/ASX 200 dropped 0.8% to 8,533.60.
In contrast, South Korea’s Kospi managed a modest gain of 0.3%, reaching 7,292.41, following a broad sell-off experienced the previous day. Taiwan’s Taiex also saw a positive movement, gaining 0.4%.
U.S. Markets Show Weakness
U.S. stock futures indicated a relatively stable opening after the S&P 500 closed Tuesday with a 0.7% loss, marking its third consecutive decline since establishing its latest all-time high at 7,353.61. The Dow Jones Industrial Average fell 0.6% to 49,363.88, and the Nasdaq composite sank 0.8% to 25,870.71.
Tech Stocks Under Scrutiny
Technology stocks, which have experienced substantial gains fueled by excitement over artificial-intelligence advancements, are now facing increased scrutiny. Critics suggest that the rapid ascent of these stocks has made them overvalued.
The market’s attention is particularly focused on Nvidia’s upcoming quarterly earnings report. The chip manufacturer has a consistent track record of exceeding analyst expectations and providing robust future growth forecasts. The company’s performance is seen as a potential indicator for the broader technology sector and the overall U.S. stock market’s ability to sustain its rally.
Nvidia itself experienced a 0.8% decline on Tuesday, and due to its significant market capitalization, it was one of the heaviest drags on the S&P 500.
Other notable stock movements included Akamai Technologies, which dropped 6.3% after announcing its intention to raise $2.6 billion through a convertible note offering. In contrast, Home Depot saw a 0.9% increase, reversing earlier losses. The home improvement retailer reported profit and revenue that edged past analyst expectations, though a key metric for same-store sales performance fell short of some analysts’ projections.
Home Depot CEO Ted Decker noted that customer demand remained consistent with the previous year, despite heightened consumer uncertainty and pressures on housing affordability.
Economic Undercurrents
Many large U.S. corporations have reported stronger-than-expected profits for the recent quarter, partly attributed to continued consumer spending despite elevated gasoline prices and other economic challenges. This resilience has contributed to the surge in U.S. stock indexes to record levels. However, the growing disquiet in the bond market poses a significant threat to this upward trajectory.
The yield on the 10-year Treasury note rose to 4.66% from 4.61% late Monday. This increase is particularly noteworthy given that yields were below 4% before the conflict with Iran commenced. This worldwide climb in yields is making stock valuations appear increasingly expensive and raises concerns about a potential economic slowdown.
Higher yields can translate into increased borrowing costs for mortgages and corporate loans, including those for companies building AI data centers, a sector that has been a significant engine of economic growth. The rise in yields occurred even as oil prices experienced a slight easing. Early Wednesday, U.S. benchmark crude oil was down 45 cents at $103.70 per barrel, and Brent crude lost 50 cents to $110.78 per barrel. The average price for a gallon of gasoline continued to climb, reaching $4.53, approximately 43% higher than a year ago, according to AAA.
