Wall Street has had a wobbly start to the month driven by anxieties about high-flying AI darlings and other tech stocks. But even though the tech-heavy Nasdaq is down almost 3% for the week, as of Friday morning, it’s still up roughly 50% from the post-‘Liberation Day’ lows. So is this week’s tumble simply a speed bump or the beginnings of a correction in what has become a well-hated rally?
The “AI bubble” question was thus center stage yet again this week. Several Wall Street bosses sounded the alarm about lofty equity valuations, as anxieties grow about hyperscalers’ astronomical capex binges and the emergence of huge bond sales in the tech space.
ROI editor-at-large Mike Dolan argues that two things can be true at the same time: AI may eventually change the world, and investors buying at today’s eye-watering prices could still lose money. Just ask anyone who bought Cisco shares at their peak in 2000.
One person who isn’t feeling conflicted this week is Elon Musk. The Tesla CEO won shareholder approval on Thursday for the largest corporate pay package in history, which could see the world’s richest person get as much as $1 trillion in stock over the next decade before required payments.
Speaking of trillions, it looks like the global economy has seen the peak of the monetary easing cycle, meaning the number of cumulative cuts globally should decline moving forward. In recent decades, this has typically been followed by a broadening of the earnings cycle and a period of solid equity performance. But ROI markets columnist Jamie McGeever argues that today’s frothy valuations mean this may not be the case this time around.
Of course, the U.S. Federal Reserve is still likely to continue cutting, even if it holds off next month. We should keep an eye on the growing divisions on the policymaking committee, however, because, as Jamie McGeever argues, if they keep growing, investors will be in unfamiliar territory, having grown accustomed to well-telegraphed, consensus-driven Fed policy.
Leaving the U.S. briefly, the Bank of England kept their benchmark policy rate unchanged at 4% on Thursday. The narrow 5-4 vote was viewed by many as a sign that a cut in December is now more likely. Meanwhile, UK finance minister Rachel Reeves hinted in a speech on Tuesday that higher taxes will likely be a part of the next budget to be released on November 26.
In energy markets, OPEC+ managed to both meet market expectations and deliver a surprise on Sunday by agreeing to a small rise in crude oil output for December – 137,000 barrels per day – as well as a pause for the first quarter of next year. ROI Asia commodities columnist Clyde Russell argues that the decision may be a sensible precautionary move in the face of current market uncertainties on both the supply and demand fronts.
On the renewables side, Germany's gas-fired power generation recently hit the highest levels since 2021, notes ROI Energy Transition Columnist Gavin Maguire. This is scuppering regional efforts to replenish natural gas stockpiles, meaning the region could be exposed to power price volatility heading into winter.
Over in the metals markets, ROI metals columnist Andy Home explains how China is seeking to tackle its smelter overcapacity issues in copper, lead and zinc.
Next, Clyde Russell puts this year’s gold rally into perspective, pointing out that it’s only the third-strongest in terms of percentage gains in the past 50 years. And, finally, Taosha Wang of Fidelity International writes in her latest ROI column that the copper-gold ratio – which recently hit a multi-decade low – is bent but not broken.
As we head into the weekend, check out the ROI team’s recommendations for what you should read, listen to, and watch to stay informed and ready for the week ahead.
I’d love to hear from you, so please reach out to me at anna.szymanski@thomsonreuters.com.
