\n Volatility has returned to the stock market, and AI is once again the culprit.\n <\/p>\n
\n The tech-heavy Nasdaq dropped 2.21% and the S&P 500 fell 1.44% Tuesday as investors sold semiconductor chip stocks and other AI-related shares. The Dow, which has less exposure to tech, was down about 0.1%.\n <\/p>\n
\n The S&P and Nasdaq each had their worst day in about two weeks. The declines came after steep sell-offs in Asia. Nerves about AI quickly spiraled into full-on panic trading in South Korea on Tuesday, where the Kospi<\/a> index tumbled 10%, tripping a circuit breaker that led to a 20-minute cooling-off session.\n <\/p>\n \n SK Hynix and Samsung, two of the world\u2019s leading memory chipmakers<\/a>, tumbled more than 12%, dragging the rest of South Korea\u2019s stock market down with them (the two chipmaking giants make up about half of the Kospi\u2019s total market value).\n <\/p>\n \n \u201cThese big moves are part of a growing trend of rising volatility in tech stocks generally,\u201d James Reilly, senior markets economist at Capital Economics, said in a note. \u201cThis volatility is, in our view, evidence of excessive froth and calls into the question the sustainability of this rally.\u201d\n <\/p>\n \n US markets kicked off the week on a down note, with the Nasdaq falling 1.3% Monday before extending losses Tuesday. The mild US tech-sell off Monday spilled into Asian trading hours, and then the sell-off intensified Tuesday.\n <\/p>\n \n Traders\u2019 fear isn\u2019t about anything specific, and there wasn\u2019t any obvious catalyst to lead to such enthusiastic selling. But those nerves continued in the United States, where tech stocks had a rough day. Some investors might be taking profits after strong rallies.\n <\/p>\n \n Some market analysts pointed to jitters sparked by Google (GOOG<\/a>) and SpaceX (SPCX<\/a>) falling somewhat sharply Monday. But Google\u2019s 5% decline was mostly because of a high-profile AI leader defecting to Anthropic, and SpaceX \u2013 which dropped 16% Monday \u2013 has some post-IPO jitters that are typical for companies whose stocks boom right out of the gate.\n <\/p>\n \n Google fell less than 1% Tuesday, while SpaceX gained about 1% after fluctuating in volatile trading. Nvidia (NVDA<\/a>) was about 4% lower, weighing on the broader market. Oracle (ORCL<\/a>) fell more than 5.5%, putting it down about 27% this month.\n <\/p>\n \n Other analysts suggested the markets were reacting to the likelihood that the Federal Reserve may raise interest rates later this year. But that\u2019s not exactly new information: New Fed Chairman Kevin Warsh<\/a> held his first press conference last Wednesday to announce that the Fed would double down on its mission to get inflation under control \u2013 a promise that prompted a market sell-off as it interpreted Warsh\u2019s words as a pledge to raise interest rates later this year.\n <\/p>\n \n Semiconductor chip stocks, which have led the market rally this year, fell sharply Tuesday: Micron Technology (MU<\/a>) dropped 13%. Marvell Technology (MRVL<\/a>) sank 9%. Traders are awaiting Micron\u2019s quarterly earnings results on Wednesday.\n <\/p>\n \n Whatever the cause, with AI companies\u2019 sky-high valuations and incredible growth trajectories, it doesn\u2019t take much to set off investors. The Kospi is up more than 90% this year, so when the wind blows in an unexpected direction, it can lead traders \u2013 and, often more consequentially, trading algorithms \u2013 to head for the exits. They fear the top of the Jenga tower could tip over.\n <\/p>\n \n The problem, as always with markets, is no one knows how high the Jenga tower goes. We could still be building the foundation.\n <\/p>\n \n Nevertheless, the fear in South Korea spread throughout Asia. Japan\u2019s Nikkei 225 fell 3.6% and tech behemoth Softbank sank 15%. Most other Asian indexes were down more than 1%.\n <\/p>\n \n Although tech stocks have been under pressure lately, they really haven\u2019t dropped all that much: The Nasdaq is down about 5.5% from its record high set on June 2. All told, the tech-heavy index is still up 10% this year.\n <\/p>\n