World stocks dip on AI spending concerns, Brent settles lower

Wall Street closed lower, with all three indexes dragged down by industrials, healthcare and financials, while chip stocks fell more than 2%. (EPA Images pic) NEW YORK: World stocks edged lower on Tuesday as concerns about AI spending weighed on chipmakers and investors looked ahead to more US corporate earnings for clues on whether big technology firms can justify their heavy capital spending.

Brent crude futures also fell as traders assessed developments in the Middle East conflict.

Investors have ridden the AI wave in the past four years as massive spending powered corporate profits and economic growth, but more recently, worries over concentration risks and whether a payoff will come soon enough have weighed.

On Wall Street, all three indexes finished lower with industrials, healthcare, and financials driving losses. Chip stocks lost more than 2%.

The Dow Jones Industrial Averagefell 0.35%, the S&P 500 fell 0.02% and the Nasdaq Composite fell 0.15%.

The pan-European STOXX 600 index fell 0.1%. MSCI's main world stocks index dipped 0.23%.

"The AI trade has been driving the market for the first part of the year up until the third quarter and usually the Nvidias and AMDs trade down ahead of the hyperscalers' earnings announcements because of the uncertainty with regards to the capital spending cycle," said Gerry Sparrow, president and portfolio manager at Sparrow Capital Management.

Reported progress by Chinese memory chip maker CXMT has fuelled concerns about increased competition from China's AI players, while Broadcom CEO Hock Tan likened some of the flows into the broader AI sector to "casino gambling."

Earnings kick-off

Investors are turning their eyes to the US quarterly earnings season, which kicked off with results from big banks.

Shares in JPMorgan Chase dropped 0.86% after it reported a profit increase in the third quarter, driven by investment banking and trading performances. Wells Fargo dropped 3.1% and Goldman Sachs fell 0.23% after their results.

AI heavyweights Alphabet, Amazon.com, Meta Platforms and Nvidia are yet to report their quarterly earnings.

"Until we get clarity on hyperscaler capital spending and revenue on the AI trade, you're going to see some very mixed results on the benchmarks: Dow, S&P 500 and the Nasdaq," Sparrow said.

Bond yield ease

The benchmark 10-year yield fell 2.72 basis points to 5.22%, inching away from the 24-year high of 5.364% it hit last week.

A toxic mix of inflationary pressure from elevated energy prices and worries about ballooning government debt has triggered several bond selloffs in recent weeks, pushing borrowing costs to multi-decade highs across the globe.

Traders are awaiting US inflation data on Wednesday for clues on the Federal Reserve's policy path. They are pricing in an 80.6% chance that it holds rates steady later this month, up from 51% a month earlier, the CME FedWatch tool showed.

Oil prices eased as traders assessed supply risks from attacks on Saudi Arabia while weighing the prospect of additional diesel supplies from Russia. Brent crude futures dipped 0.9% to US$105.69 per barrel.

The dollar slipped from 18-month highs, along with a drop in yields and oil prices. The euro was last up 0.01% at US$1.1199, while the Japanese yen was at 158.31 per dollar.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.34%.