Stock Rally Pauses on Tech, Gold Hits $4,000 Mark: Markets Wrap
(Bloomberg) — Stocks extended their decline from record levels as investors grew cautious about lofty valuations and the billions pouring into artificial intelligence, fueling questions about the pace of recent gains.
Asian shares fell 0.7% and were poised for their biggest decline in two weeks as MSCI’s gauge of global stocks and the S&P 500 index retreated after a seven-day rally. Equity-index futures for the US edged up, indicating the pause in the gains may be brief. Gold extended its scorching rally to top $4,000 an ounce amid concerns over the US economy and a government shutdown.
The dollar neared a two-month high while the yen fell to its lowest level since February, weighed down by Sanae Takaichi’s unexpected win to head Japan’s ruling Liberal Democratic Party.
The US benchmark had slipped along with technology stocks as concerns grew that a $16 trillion surge from its April lows had gone too far. The drop came amid mounting chatter about lofty valuations around artificial intelligence, with some investors worrying that the frenzy could echo the excesses that led to the dot-com crash 25 years ago.
“Markets have been rallying for a while, so a pullback is normal,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “AI is the central theme for markets now, so the upcoming earnings season will again be critical for investors to validate their by-now hyper-optimistic assumptions.”
The pause in the rally came after investors had cheered a wave of AI alliances this month, involving OpenAI, Nvidia Corp. and Asian companies such as Hitachi Ltd. and Fujitsu Ltd. The Elon Musk-backed artificial intelligence startup xAI is also raising more financing than initially planned — including an equity investment from Nvidia — to bring its ongoing funding round to $20 billion.
In the US, investor optimism has grown heated in recent months, with many seeming too busy chasing the upside to worry about risks like a US government shutdown and stretched valuations.
Some Wall Street pros noted that having multiple large technology stocks surge by double-digits in quick succession could be a sign that valuations have become disconnected from underlying fundamentals.
Billionaire Ray Dalio — who founded the hedge-fund firm Bridgewater Associates — expressed reservations about the scale of the stock market’s recent rise, which has stoked concern about an AI bubble as valuations have soared.
“This is something that feels frothy to me,” Dalio said.
Dalio sees gold as a strong store of value at a time of rising government debt burdens, geopolitical tensions, and the erosion of confidence in the stability of national currencies.
Concerns over the US economy and a government shutdown added fresh momentum to gold’s surge, with its 53% gain this year putting the traditional safe haven on course for its strongest annual advance since 1979.
While concerns are legitimate and an ever-present risk, there was no fresh information that came to light overnight to really threaten the bull market, wrote Kyle Rodda, a senior market analyst at Capital.com in Melbourne.
Even as there are pockets of risk, including in Asia and the US, “we are not really seeing a broad-based risk of a reversal yet, so we do think the trade could potentially continue for the time,” Rupal Agarwal, a quantitative strategist at Sanford C Bernstein, said in a Bloomberg TV interview.
Attention in Asia was also on the yen, which weakened to as low as 152.34 against the dollar, while moving to a fresh record against the euro since the common currency’s inception in 1999. The markets curbed their expectations for a Bank of Japan interest-rate hike in the aftermath of the victory by the pro-stimulus lawmaker.
On Wednesday, Japan’s wages rose at the slowest pace in three months with real pay extending its falling streak.
What Bloomberg strategists say…
Short yen strategies will get a modest refresh after an across-the-board miss for Japan’s cash earnings data. It will be another reason for the country’s politicians to call on the Bank of Japan to delay interest rate hikes. Today’s data is more fuel for the yen to extend declines against major peers.
— Mark Cranfield, MLIV macro strategist. Click here for the full analysis.
Elsewhere in Asia, New Zealand’s currency fell after the central bank cut interest rates and signaled openness to more.
Corporate News:
ABB signed an agreement to divest its Robotics division to SoftBank Group for an enterprise value of $5.375 billion and not pursue its earlier intention to spin-off the business as a separately listed company. BMW AG lowered its financial guidance for the year on persistently weak sales in China and tariff-related costs, underscoring the difficulties Germany’s export-reliant auto industry is facing. Tesla Inc. introduced new versions of its top-selling models priced at under $40,000, making its main vehicles more affordable to counteract the loss of US incentives for electric cars. Dell Technologies Inc. roughly doubled its growth estimates for sales and profit for the next two years, and said demand for artificial intelligence products will extend those higher projections at least through the 2030 fiscal year. Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 6:50 a.m. London time Nasdaq 100 futures rose 0.1% The MSCI Asia Pacific Index fell 0.7% Japan’s Topix rose 0.3% Hong Kong’s Hang Seng fell 0.8% Euro Stoxx 50 futures were little changed Currencies
The Bloomberg Dollar Spot Index rose 0.2% The euro fell 0.4% to $1.1615 The Japanese yen fell 0.3% to 152.38 per dollar The offshore yuan was little changed at 7.1483 per dollar The British pound fell 0.3% to $1.3390 Cryptocurrencies
Bitcoin fell 0.6% to $121,299.09 Ether fell 1.7% to $4,434.46 Bonds
The yield on 10-year Treasuries was little changed at 4.12% Japan’s 10-year yield advanced two basis points to 1.695% Australia’s 10-year yield declined two basis points to 4.36% Commodities
Spot gold rose 1.2% to $4,031.16 an ounce West Texas Intermediate crude rose 0.9% to $62.28 a barrel This story was produced with the assistance of Bloomberg Automation.
–With assistance from Winnie Hsu, Abhishek Vishnoi and Mark Cranfield.
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