Top US stock indices like the Nasdaq 100, S&P 500, and the Dow Jones are falling today, continuing a sell-off that started on Thursday. QQQ, which tracks the Nasdaq 100 Index, retreated to $708, down by 5.4% from its highest point this year.
Similarly, the VOO and SPY ETFs have dropped by nearly 3% from its highest point this year. The Dow Jones Index also retreated by 1.35% from the year-to-date high. This article explores some of the top reasons why the stock market is crashing today.
One of the top reasons behind the ongoing stock market is crashing today is this week’s Broadcom earnings. These earnings have helped to push the stock to $388, down by 22% from its highest point this year.
This crash led to a drop in other AI stocks like AMD, Intel, Marvell, and Nvidia, which have soared substantially in the past few months. DRAM, the popular memory-based ETF that launched in April, dropped to $55.9, down by over 20% from its all-time high.
Broadcom’s earnings were not necessarily bad. In fact, the results showed that its revenue jumped by 48% from the same period last year, while its AI revenue jumped by 143% from the same period last year, driven by its accelerators and AI networking.
Its guidance was good, but lower than expected. It now expects that its third-quarter revenue will be $29.4 billion, lower than the expected $30 billion.
The stock also dropped because the expectations among investors were high, which pushed its stock to a record high before the earnings release. It is common for soaring stocks to retreat after their earnings.
The VOO, SPY, and QQQ ETFs are crashing because of profit-taking after the recent rally moved them to overbought levels. Before this crash, the QQQ stock moved to the extreme overbought level of 83. It had jumped by over 20% this year.
Similarly, the S&P 500 Index was up by over 20% from the year-to-date low, while the RSI moved to the extreme overbought level of 78. It is common for highly overbought assets to pull back as investors start to book profits.
The stock market crash is happening as the US and Iran quagmire continues. Despite Trump’s assurances of a deal being imminent, the two sides have failed to reach an agreement.
In a statement this week, Hezbollah noted that it would not respect the Iran-Israel ceasefire. Iran has insisted that any ceasefire will include Hezbollah, its regional ally.
It is unclear whether the two sides will reach an agreement anytime soon. This risks a new phase of the war or a prolonged phase of the Strait of Hormuz closure. Analysts believe that such a move will lead to higher crude oil prices, which will lead to more inflation. Besides, data shows that US inventories have plunged to a two-decade low.
The stock market is crashing after the US published strong jobs numbers. A report showed that the economy added 172k jobs, higher than the expected 85k. The unemployment rate remained unchanged at 4.3%.
These jobs, coming at a time when inflation is steady, mean that the Fed has a reason to hike interest rates this year. This explains why US bond yields continued rising this week. US stocks tends to underperform the market when the Fed is hiking rates.