The Reason Why Market Tumbles recently

Between July 24th to 25th 2024. The Magnificent 7 lost over $600 BILLION of market cap and the Broad Index S&P 500 lost $1.1 TRILLION of market cap. (Yes, Trillions)

The heatmap pretty much shows the bloodbath happened for the past few days

To begin the Vix (volatility / fear gauge) index also shows a massive surge within these few days, hitting the 18 mark.

The last time it was this high was in Apr 19th 2024 where it hit peak of 19.23

Very obvious the market sentiment was moving towards a fearful state.

But recent PMI and other data shows that the economic is doing decently well and there is a good chance that the Fed will be cutting rates in the month of Septemeber where the next FOMC meeting will be held.

But still the market tumbles and crashes.

Why is that so???

First Triggering Point (1) : Sudden Surge of Optimism in AI development but no visible results

Since the released of Chatgpt in Nov 2022, many companies have started to pour hugeeee amount of capital into Artifical Intelligence.

Where in a article it is said that Tech Giants are set to spend over $1 Trillion on AI Capex (Capital Expenditure) in the coming years, with so little result to show for it. What if all these money and time poured into AI did not advance and pay off?

Well, its true that AI is not really a something that will immensely advance or develop in just a few years. This will undoubtly take 10 years or even more to see significant results and practical usage where there is very strong visible changes to our daily lifes and work from AI itself.

But what if there is no results to show? How would be justify the Mega companies spending all these bucks that might never work out? Will this become a bubble and burst eventually?? I dont know

But right now, investors have yet to see signifcant returns and results from their AI investments. Not to mentioned the insane expenses and cost to run AI technology today? investors hope that companies are not just burning cash away for a far away dream

Second Triggering Point (2) : GOOGLE & TESLA Earnings Report

Both of these companies released their Q2 2024 earnings report on 24th July (Tuesday)

First, Tesla shares plunges 8-10% after the earnings report due to the EPS falling 43% YOY and miss analyst estimates of $0.62

Bad margins across all boards (Gross, operating and Net)

Investors are also not sure if the upcoming Robtaxi in October 10th will live up to the expectations or its another facade. Tesla revenue and margins are set to recover after late 2025

For Google, post earnings report result in a 4% drop in the share price

Overall for Google, everything seems good for the revenue, EPS, margins, Net income and Balance Sheet

Only fall was in Ad revenue.

During earnings call, a question was asked to answer by CEO Pichai : Other than Ad Revenue, how is the investment made on AI working out and Pichai did not answer directlty. This directly make wallstreet realized that they might be too optimisitc regarding the development that AI can bring now.

Beause what contributed to this year gains were mainly due to the theme of AI Technology.

But it just seems like AI is just a cash burning investment that wont bring any results oor revenue for the company in the short term.

Because it is hard to tell how much AI really contributed to Google earnings growth.

How much of that is derived from AI and how much of that is not derived from AI?

What if Google did not put money into AI and they still can deliver similar results during their earnings report??? Does that shows that AI did not make a difference at all and it is just a liability to the company at the moment. Do not forget that Google pour $5b investment into Waymo (Automous driving) investment as well.

And not to mention OpenAI announced searchGPT that will compete with Google seach

Last point (Not triggering point) : Normal and healthy for market to experience major corrections 2 to 3 times per year.

Especially when the market has been rallying nothing but upwards for the past 6 to 7 months.

It is a long due correction and profit taking from Institutional and Retail investors and rotate their capital out into other sector.

The current resistance level is for S&P 500 is around $5600 and the temporary support level is around $5500

If it breaks below this current support level, the next support level will be around $5200 level where you can see buyers coming back to push the price higher

we might see some weakness or flat market for broad index for the month of August.