Has the "God of Stocks" and AI, the "two major beliefs" in the US stock market, collapsed one after another?

Back in mid-August, Wall Street News raised a question: which will collapse first, the "Stock God" or AI in the US stock market?

At that time, Warren Buffett increased his holdings in DR Horton, the largest residential construction company in the US, and also bought two other builders, Lennar and NVR. The "blessing of the Stock God" made US real estate stocks fearless and soared despite high interest rates.

Meanwhile, the seven major US tech giants rode the wave of AI and achieved remarkable gains that attracted global attention. Nvidia, in particular, led the tech stocks with a surge of over 200%.

The reason for posing such a question is that the Federal Reserve's interest rate hike cycle is likely not yet over, and the continuously rising mortgage rates will undoubtedly impact the real estate industry. Moreover, the question remains whether AI can support the already expensive tech stocks.

Currently, as oil prices continue to rise and the US economy continues to demonstrate resilience, concerns about inflation intensify, and expectations for a hawkish Federal Reserve increase. Real estate and tech stocks, the two best-performing sectors in the US stock market this year, are on the verge of collapse.

Real estate stocks suffer heavy selling

On Tuesday local time, real estate giants Pulte Group, Lennar, and DR Horton experienced a heavy sell-off, with losses of around 4%-5% on that day. They recovered some lost ground on Wednesday. Despite their recent poor performance, these three stocks have outperformed the S&P 500 index this year, with PulteGroup even surging over 70%.

In a report released later, Goldman Sachs stated that the biggest negative factor affecting real estate was the rapid rise in interest rates last Friday (the 10-year US Treasury yield rose 9 basis points to 4.27% at one point, approaching the high point since the beginning of the year). This led to a severe weakness in a wider range of long-term assets.

Goldman Sachs mentioned that the massive supply of investment-grade bonds, the extension of production cuts by Saudi Arabia and Russia pushing up oil prices, and hedge funds closing long positions all contributed to the rise in US bond yields. Goldman Sachs believes that 90% of the pressure faced by homebuilders comes from interest rates and oil.

In addition, Goldman Sachs also mentioned a mixed survey report. The report emphasized that feedback from building product suppliers indicated that construction momentum remained strong, but renovation momentum was not satisfactory.

Then there are the offside positions, but this situation is not as short-lived as before, as most people choose to sell after better-than-expected profits.

Fed Rate Hike Expectations Rise, Tech Stocks Plummet

The tragedy is also unfolding in the tech sector.

On Wednesday local time, tech stocks across the board plummeted, with both Apple and Nvidia falling more than 3%, and Tesla dropping over 4% at one point during the trading session. By the close, the Nasdaq was down 1%, marking its third consecutive day of decline.

According to an earlier article from Wall Street CN, the US August ISM Services Index exceeded expectations, reaching a six-month high of 54.5, expanding for eight consecutive months. The employment index also rose to its highest level since November 2021, and the new orders index reached a six-month high as well. However, the payment index reflecting inflation reached a four-month high.

Some analysts believe that this data highlights US consumer demand and overall economic resilience, increasing the probability of avoiding a recession. However, the rising cost pressures on service providers may keep inflation at elevated levels in the long term, leading to increased speculation in the money market about a Fed rate hike in November.

In addition, the US Senate confirmed the nomination of Philip Jefferson as the vice chairman, the "second in command," of the Federal Reserve. Since joining the Federal Reserve Board, he has voted in favor of every interest rate decision and previously hinted at the possibility of pausing rate hikes before the June meeting.

Former hawkish Federal Reserve Chair and former President of the St. Louis Fed, Brad, expects one more rate hike this year. Eric, a voting member in 2025 and President of the Boston Fed, stated that we may be very close to or have already reached the peak interest rate, but we have not yet been able to control inflation. We need to patiently evaluate the data, and there may be reasons to further tighten policy.

It is worth mentioning that after half a year of AI prosperity sparked by ChatGPT, the market's enthusiasm for this concept is starting to wane.

AI startups such as Tractable and Jasper have already begun layoffs, and even "star companies" are showing hidden concerns as the traffic to ChatGPT and the image-generating AI platform Midjourney continues to decline.

Mark Goldberg, a partner at Index Ventures, said that the emergence of commercial AI applications was once expected to achieve "instantaneous realization," but now there is a "superficial sense of disillusionment."