Stocks Rally Resumes as Gold Breaks Above $4,000: Markets Wrap
(Bloomberg) — US equity futures gained, suggesting the stocks rally is set to resume as investors cast aside worries about lofty valuations and the billions pouring into artificial intelligence. Gold surged above $4,000 an ounce.
Contracts on the S&P 500 were about 0.2% higher after the benchmark snapped an eight-day winning streak. Nasdaq 100 futures also rose. Advanced Micro Devices Inc. extended gains in premarket trading after an explosive rally following its multibillion-dollar AI deal with OpenAI. Tesla Inc. advanced after it unveiled a cheaper version of its top-selling electric vehicle.
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The dollar gained for a third day against major peers, while Treasury yields dipped.
Concerns have been growing that $16 trillion surge in the S&P 500 from its April lows had gone too far. Tuesday’s drop came amid mounting chatter about lofty valuations around artificial intelligence, with some market participants seeing an echo of the excesses that led to the dot-com crash 25 years ago. Still, many investors fear missing out on further gains, with the upcoming earnings season set to provide clues on the rally’s sustainability.
“There are worrying signals on the AI rally, which reminds me of 1997 when I started my career,” said Gilles Guibout, head of European equities at Axa Investment Managers. “The bubble burst in 2000 but those managers who had refused to follow the rally, rightfully expecting it to go pop, lost a lot of money for their clients. There’s a real risk to get out of the AI trade too early; what you need to do is stay invested but with your finger on the exit button and stay diversified.”
Elsewhere, Europe’s Stoxx 600 benchmark climbed 0.6%, on track for another record close, as the basic resources sector jumped more than 1%. Lloyds Banking Group Plc led banks higher after a favorable ruling on the cost of disputed car loans. European stocks were also buoyed by moves to resolve France’s budget impasse. The country’s CAC 40 equity index rose as much as 0.8% and bond yields fell.
The European technology sub-index, however, underperformed. BMW AG slumped, dragging peers lower, after the German luxury-car maker cut its financial guidance on weak sales in China and tariff-related costs.
Bubble Fears
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.
For Goldman Sachs Group Inc. strategist Peter Oppenheimer, however, it’s too early to worry about a speculative extremes as the record-breaking rally in tech heavyweights has been accompanies by robust earnings growth.
“Valuations of the technology sector are becoming stretched but not yet at levels consistent with historical bubbles,” Oppenheimer and his team wrote in a note. Still, they recommend that investors seek diversification to avoid risks around a narrow US stock rally and higher competition in the artificial intelligence space.
Meanwhile, 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 markets curbed their expectations for a Bank of Japan interest-rate hike in the aftermath of the victory by the pro-stimulus lawmaker.
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. UBS Group AG has shelved a significant risk transfer transaction tied to 2 billion francs ($2.5 billion) of loans. Security services group Verisure Plc’s shares rallied in its trading debut, after the initial public offering raised about €3.2 billion ($3.72 billion) in the largest European debut in three years. ASML Holding NV shares fell after US lawmakers accused the Dutch chip equipment maker of boosting China’s semiconductor industry, raising the specter of further export controls on the company’s lithography machines. Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.2% as of 6:57 a.m. New York time Nasdaq 100 futures rose 0.2% Futures on the Dow Jones Industrial Average rose 0.2% The Stoxx Europe 600 rose 0.7% The MSCI World Index was little changed Currencies
The Bloomberg Dollar Spot Index rose 0.1% The euro fell 0.2% to $1.1635 The British pound was little changed at $1.3422 The Japanese yen fell 0.5% to 152.71 per dollar Cryptocurrencies
Bitcoin rose 0.8% to $122,986.58 Ether fell 0.2% to $4,505.28 Bonds
The yield on 10-year Treasuries declined two basis points to 4.10% Germany’s 10-year yield declined four basis points to 2.67% Britain’s 10-year yield declined two basis points to 4.70% Commodities
West Texas Intermediate crude rose 1.1% to $62.40 a barrel Spot gold rose 1.3% to $4,037.50 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jack Ryan and Anand Krishnamoorthy.
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