US equities have slumped in the past few weeks, with the S&P 500 index plunging by about 7.65% from its highest point this year. The popular Nasdaq 100 index, which tracks the biggest technology companies, has moved into a correction by falling by over 10% from the year-to-date high. This article explains why the popular S&P 500 ETFs like IVV, SPY, and VOO have crashed.
AI jitters are the main reason for the S&P 500 index crash
The general view among market participants is that Donald Trump’s tariffs have contributed to the ongoing S&P 500 index crash. While this is true, a closer look at the top performers and laggards in the index shows that the most logical companies to be affected by tariffs have not been the biggest casualties.
For example, Ford’s stock has jumped by 1% this year, while General Motors has dropped by 6%. Other companies that deal with imports like Kroger and Dollar General have done well this year.
Most notably, the popular Invesco S&P 500 Equal Weight ETF (RSP) has dropped by 0.80% this year, while the S&P 500 index has dropped by 3.6%. The SCHD ETF has risen by 1.6% this year.
Therefore, there are signs that the ongoing SPY, IVV, and VOO ETFs crash has more to do with technology stocks than the broader market. Indeed, all companies in the Magnificent seven have all plunged, with Tesla and Nvidia being the biggest casualties.
The most likely reason for the ongoing US stock market crash is that there are concerns that the AI industry is slowing. This view diverges with the broader market that has continued funding AI companies. Just this week, we reported that PerplexityAI was raising cash at a $18 billion valuation.
Most publicly traded AI stocks like C3.ai, NVIDIA, AMD, SoundHound, and BigBear AI have all plunged by double digits from their highest points this year. C3.ai stock has crashed by 50% from its highest level in December. Similarly, AMD stock has dropped by 53% from its highest point in 2024. NVIDIA has also crashed by over 15% from its highest level this year.
There are signs that the AI industry is cooling, with most companies reporting strong but decelerating earnings. NVIDIA’s fourth-quarter revenues soared by over 70%, and guided to 66% YoY growth in the first quarter. Analysts expect that NVIDIA’s revenue will grow by 56% this year and 23.3% next year.
SPY ETF stock price analysis
The second reason why the S&P 500 index has crashed is what we wrote about in this January article. In that article, we warned that the index would plunge because it formed a rising wedge and a double-top pattern at $610. These are some of the most bearish patterns in the market.
The index has now plunged below the 50-day and 100-day moving averages, a sign that bears are in control for now. Therefore, there is a risk that the index and its accompanying ETFs, like the SPY, VOO, and IVV ETFs, will continue falling in the coming days. The initial target for the SPY ETF stock is the year-to-date low of $547 and the psychological point at $504.
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