Selling pressure in the United States slipped into the European session on Tuesday as cyclical names dragged on the FTSE 100.
The UK doesn’t have the weighting towards the technology sector in the way the US does, so traders looking at declines in US indices overnight picked out the closest thing to it in stocks sensitive to investors’ sentiment.
London’s leading index was down by 0.2% at the time of writing with stocks such as Rolls Royce, Burberry, Melrose, and a splattering of banks, leading the declines.
Rolls Royce was the top faller, with a 4% drop after Airbus said it was experiencing supply chain issues and cut its profit forecast. Airbus is a major Rolls Royce customer, suggesting Rolls Royce itself may be encountering difficulties.
Although the FTSE 100 was in the red on Tuesday, the selling was contained by a tick-up in US futures, implying the dip in the US will be short lived.
“Last night’s sell-off in certain US tech stocks doesn’t appear to have had any lasting damage given how futures prices are pointing towards an ‘up’ day for Wall Street on Tuesday,” said Russ Mould, investment director at AJ Bell.
The nature of the US selloff should be of little concern for UK investors. The declines were limited to a select few tech stocks, including Nvidia, who have made astronomical gains amid the AI gold rush.
“Admittedly, a near-7% decline in Nvidia might have sounded the alarm bells that we’re seeing a shift in the market. It’s important to remember that stocks don’t always travel in a straight line and there is a herd mentality with big-name companies on the market,” Mould said.
The AI boom has driven global equities higher over the past 18 months, and any hints it could be overheating will undoubtedly be met with risk aversion.