The Australian Securities Exchange (ASX) experienced a downturn on Wednesday, with miners and tech stocks leading the decline. This followed a slump on Wall Street, where concerns about the market's artificial intelligence frenzy and potential overvaluation triggered a sell-off. The S&P/ASX 200 index dropped 0.6%, closing at 8762.2 points, with seven out of eleven industry sectors in the red. The local bourse had already hit a six-week low the previous day due to the Reserve Bank's decision to maintain interest rates and its cautious stance on further cuts.
Miners, particularly those involved in iron ore, were among the hardest hit. The sector's decline was driven by a 2.6% drop in the iron ore price, adding to the uncertainty surrounding future demand. Major players like BHP, Fortescue, and Rio Tinto saw their shares fall by 1.3%, 3.8%, and 2.8%, respectively. The upcoming shipment of iron ore from the Simandou project in Guinea by Rio Tinto and its Chinese partner Chinalco further complicated market dynamics, as it threatened to shift power in an already uncertain market.
Gold miners also struggled, with Northern Star Resources, Evolution Mining, and Newmont experiencing significant losses. The spot prices for gold bullion fell due to a strong US dollar, impacting commodities priced in dollars. Other miners, including lithium producer Pilbara Minerals and rare earths supplier Lynas, also saw their shares decline. The tech sector was not immune, with software firms WiseTech Global and Technology One, and AI data center operator NextDC, all experiencing losses.
The market's decline was further exacerbated by the prospect of prolonged higher borrowing costs, affecting discretionary retailers like Officeworks and JB Hi-Fi. However, more defensive stocks such as supermarket chains Woolworths and Coles, and Telstra, managed to hold their ground. Financial stocks, accounting for a significant portion of the ASX, largely supported the market, with CBA, Westpac, and National Australia Bank showing positive growth.
Medibank Private's shares jumped after the health insurance giant announced its acquisition of Better Medical, a network of medical clinics. The market's decline mirrored Wall Street's overnight sell-off, where a group of executives warned investors about a potential pullback. Michael Burry's recent bet on share price falls for AI chipmaker Nvidia and software company Palantir further dampened sentiment.
Despite some positive earnings reports, the broader market remained cautious. Wall Street executives noted the possibility of a pullback as a healthy development, citing signs of overheating in sentiment and technical indicators. The narrow leadership of big tech has also raised concerns among investors. Apple, however, bucked the trend with a 0.4% rise, as reports suggested its entry into the low-cost laptop market.
The US government shutdown added complexity to the situation, as investors and economists grappled with the lack of timely economic data. This uncertainty has cast doubt on the Federal Reserve's ability to continue cutting its benchmark interest rate, given stubborn inflation and a weakening job market. The central bank's recent rate cut in October has been questioned by its own members, who expressed concerns about further cuts while inflation remains above the target of 2%.
