US Market Wrap: Stocks Slide Due to Rate Hike-Odds Increase and Google’s $110 billion disaster

During the US session last night, we witnessed a -1.83% dip in the Nasdaq due to a slew of hawkish Fed rhetoric. Furthermore, the pain was only exacerbated by Google’s AI blunder, where its highly anticipated Chatbot ‘Bard’ gave the wrong answer during its first live demo, causing its shares to drop by more than 7% or $110b.

The bearish interpretation from Fed’s Cook’s (voter) remarks stemmed from the strong focus she placed on the strength of the current labor market, insinuating that the impact of further rate hikes will be reduced to a ‘soft landing.’

This comes on the heels of the surprising unemployment figures released for January, which saw the unemployment rate fall to an astounding 3.4%. Fed Officials are currently predicting a rate of 4.6% by the end of the year.

These comments obviously impacted the market upon US open, as the market’s expectation for the Fed’s rate trajectory moved up with the terminal rate reaching a new cycle high of 5.18%. Rate cut expectations for the second half of 2023 also fell below 30 basis points.

Fed’s Waller (voter) also echoed similar sentiments, saying that the job on inflation is ‘not done’ which might meant a ‘long fight.’

“We are seeing that effort begins to pay off, but we have farther to go,” Waller told the Arkansas State University Agribusiness conference yesterday.

“And it might be a long fight, with interest rates higher for longer than some are currently expecting. But I will not hesitate to do what is needed to get my job done.”

To add fuel to the US equity fire, Google saw its market cap reduce by $110 billion overnight, its largest daily drop in over 3 months, after the release of its new chatbot Bard underwhelmed during its first live demo by answering a question incorrectly. 

Ushered in as a possible rival to the current gold standard of AI engines, ChatbotGPT, the hype for Bard was significant leading up to its first batch of public testing.

The colossal flop saw many analysts begin to question Google’s innovation track record, though, Gene Munster, co-founder and managing partner at Deepwater Asset Management begs to differ.

“Right now the snapshot is: advantage Microsoft. However, we still think that the long-term advantage should go to Alphabet (Google) given the resources it has put into AI over the past six years.”’

Gold rallied amongst this news as buyers clearly aren’t buying the Fed’s soft landing story and despite higher rates (normally a weight on gold) the inevitable hard landing to ensue saw further flight to safety.

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