U.S. stocks weakened overall on Tuesday, with the technology and growth sectors facing more significant pressure. The market is currently grappling with threefold pressure: high valuations of AI-related stocks, persistently high U.S. Treasury yields, and the risk of rising oil prices due to stalled U.S.-Iran diplomacy.
Nasdaq Declines More Than Dow
From the market perspective, selling pressure is mainly concentrated in technology stocks, particularly in the semiconductor and memory sectors. The Nasdaq index has seen a noticeable decline greater than that of the Dow Jones Industrial Average, indicating that funds are still avoiding high-valuation growth stocks rather than withdrawing from all sectors entirely.
Market participants have also noted that the expiration of Cboe VIX options may amplify short-term volatility. The current calm range may soon be disrupted by new event-driven factors.
Two Events Raise Volatility Expectations
Bloomberg charts show that options traders currently expect the S&P 500 to experience daily volatility of about 0.4% to 0.6% on most trading days. However, around August 27 and 28, implied volatility could rise to about 0.7%.
These two time points correspond to two significant events: Nvidia's quarterly earnings report and the Federal Reserve's Jackson Hole annual conference. The former is seen as an important window for observing AI capital expenditures and semiconductor demand, while the latter may influence market perceptions of the interest rate path.
Dow Approaches Short-Term Support Level
Although the Dow has outperformed the Nasdaq, it has also retraced some gains. Charts indicate that the Dow is trading around 53,352 points, close to the ASL21 indicator at approximately 53,362 points.
According to chart analysis, this area is still viewed as a dynamic support level. The current pullback appears more like a phase of consolidation within an upward trend rather than a confirmed reversal. If this level is breached, the next support is around the 30-day moving average at approximately 52,883 points, followed by the 52,281 point region.
Yields and Oil Prices Continue to Apply Pressure
The bond market remains one of the main sources of pressure on the stock market. The yield on the U.S. 30-year Treasury bond broke above 5.3% on Tuesday, while the 10-year yield remained around 4.7%. Rising yields mean higher financing costs, which will also depress the valuations of future earnings for growth stocks.
Oil prices further exacerbate inflation concerns. Brent crude remains around $91 per barrel, while WTI crude is close to $85 per barrel. Renewed tensions between the U.S. and Iran, coupled with uncertainties related to the Strait of Hormuz, have heightened global energy supply concerns.
With both yields and oil prices at high levels, expectations for rapid interest rate cuts are also less likely to gain traction, which is particularly unfavorable for high-valuation technology stocks.
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