Emma Wall, Chief Investment Strategist, Hargreaves Lansdown: “Halloween may be over, but markets are feeling spooked over AI stock valuations fears. Overnight, the S&P 500 fell 1.18% and the Nasdaq pulled back 1.84%, as Wall Street giants including Morgan Stanley and Goldman Sachs warned that AI stocks were in bubble territory. The negative momentum rippled through Asian markets in the early hours this morning, with Bloomberg estimating a total of $500 billion wiped off semi-conductor stock valuations globally. European markets including the FTSE 100 look set to open down this morning.
The concerns are valid. While a number of AI firms have benefits from strong revenue and profit growth, this has been a narrow and extreme rally. Earlier this year, following both the DeepSeek disruption in January and the tariff tantrum in April, returns seemed to be more broad-based, with the equal weighted S&P 500 outperforming the market cap for periods. But this did not last, and once again high growth, tech biased, AI focused businesses have delivered much of the aggregate S&P 500 returns over the past six months.
Investors should use this opportunity to crystallise impressive gains and diversify their portfolios to include a range of sectors, geographies and asset classes – adding resilience to portfolios. The gold price tipping up is screaming a warning again – a siren that this rally will not last.
As well as valuation fears, the US grappling with a nation in shutdown – now the longest in US history. And while it has yet to impact markets in any meaningful way, consumers are being affected. As well as public sector workers not receiving pay, one key impact is travel disruption. The US is nearing peak travel period, with Thanksgiving later this month. Listed airlines are likely to see share prices fall should flights be cancelled en masse. The stalemate also adds to macroeconomic concerns regarding the attractiveness of the US to do business and invest new money – potentially benefiting Europe in a best-of-the-rest trade.
There were wins for the Democrats in so-called ‘odd year elections’ overnight with most notable being a new hard left leaning New York Mayor Zohran Mamdani. Mamdani received 50.4% of the votes to Republican Curtis Sliwa’s paltry 7.1%. Former Governor Andrew Cuomo picked up 41.6%. Mamdani represents a slew of firsts – youngest mayor, first of South Asian descent, first Muslim – but more importantly for markets, he was also seen as the anti-Wall Street candidate, with several major business chiefs donating to Cuomo’s campaign instead. Investors will hope that Mamdani will now moderate some of his positions, which they feared would make New York less appealing as a global finance centre.”
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