Equities opened lower in Japan, South Korea and Australia, after Wall Street benchmarks erased earlier gains and tumbled, led by technology stocks. The sharp reversal came as lingering concerns over stretched valuations and heavy investment spending curbed a rally fueled by Nvidia’s upbeat earnings forecast, with the AI bellwether’s shares sliding 3.2%.
Attention is also on Japan, where the government is set to unveil a stimulus package. The yen was steady against the dollar as Finance Minister Satsuki Katayama said Japan will consider currency intervention among its options if there are excessive moves in the foreign exchange market.
Growing scrutiny over whether AI investments were generating sufficient revenue and profits to justify the surge in infrastructure spending continued to drive market swings. Adding to the unease was persistent uncertainty over the Federal Reserve’s ability to cut interest rates next month, as recent remarks from policymakers signaled caution about easing policy too soon.
“Is AI going to be as profitable as the market is pricing in? That’s the key question,” said Matt Maley, chief market strategist at Miller Tabak + Co. LLC. Traders are worried about whether AI investments now would be profitable in five years, he added. “As a result, people are saying, ‘I’ve got to take some chips off the table.’”
The S&P 500 benchmark logged its biggest intraday reversal — at 3.6% — since the height of the tariff turmoil in April, according to data compiled by Bloomberg. The gauge has now fallen 5% from its most recent peak.The Cboe Volatility Index rose as high as 28, above the key 20 level that causes concern for traders, just as Bitcoin sank below $87,000 for the first time since April. As risk sentiment worsened, Treasuries rose across the curve Thursday, pushing down the yields on the benchmark 10-year by five basis points to 4.08%.US equity multiples are still sitting near levels seen in prior periods of exuberance, even after a pullback that’s pushing the S&P 500 toward its worst November since 2008. Questions around whether AI is generating enough revenue or profits to justify the massive spending on infrastructure also weighed on sentiment Thursday.
“We’re at a ‘show me’ point,” said Martin Schulz, Head of International Equities at Federated Hermes. “Despite all the headwinds — tariff uncertainty, regional war, geopolitical tension and economic slowing — global equity markets have had a strong run. Now it is time for the world’s corporations to deliver on earnings.”
Thursday also brought the release of a long-delayed government employment report, which showed that US job growth picked up in September, while the unemployment rate ticked higher.
The data suggested the labor market showed signs of stabilizing before the government shutdown. The figures come a day after minutes from the Fed’s last policy meeting showed a divided committee on whether to cut rates again.
Fed Governor Michael Barr said the US central bank needs to proceed with caution in considering additional rate cuts with inflation still running above the target. Following fresh jobs data, Barr said he sees the labor market “kind of cooling,” with the economy creating jobs near the so-called break-even pace that keeps unemployment steady.
