Stocks Drop in Volatile Week on AI Valuation Woes: Markets Wrap

(Bloomberg) -- Asian equities fell at the end of a volatile week marked by conflicting views, as investors balanced optimism over technological advances with concerns over stretched artificial intelligence valuations.

The MSCI Asia Pacific Index dropped 1.3%, putting the gauge on track for its worst week since early August. SoftBank Group shares led declines in Japanese chip-related stocks. Earlier, US equity benchmarks dropped for the second time in three sessions with AI-related firms such as Nvidia Corp. tumbling, while a closely watched volatility gauge spiked. The MSCI All Country World Index is on track for its first weekly decline in four.

The losses are set to extend as US and European equity-index futures decline. Tesla Inc. advanced 1.6% in extended trading after its shareholders approved a $1 trillion compensation package for Chief Executive Officer Elon Musk.

Investors who fueled the rally on expectations of Federal Reserve interest-rate cuts and AI-driven growth are now questioning whether the massive capital spending will deliver returns. Wall Street chief executives have also struck a more cautious tone recently, as the market’s gains since April’s slump increasingly rely on a narrowing group of stocks.

“The market seems to have continued angst about the valuations of AI stocks,” said Jonestrading’s Dave Lutz, adding that semiconductor stocks were “under decent pressure.”

The pattern of selloffs followed by dip buying emerged as earnings season wound down and investors grew more reliant on private data amid a lack of official economic reports during the ongoing US government shutdown.

Investors have also been hit by conflicting views about the possibility of further rate cuts. While Thursday’s data release from Challenger, Gray & Christmas Inc., showed companies announced 153,074 job cuts last month, a slew of comments from Fed officials about inflation left traders wondering whether a December rate reduction will materialize.

Fed Cleveland President Beth Hammack said inflation is a bigger risk than job weakness. Her Chicago counterpart Austan Goolsbee told CNBC that a lack of inflation data during the shutdown makes him uneasy about rate cuts. 

Governor Michael Barr said officials still have work to do on inflation while ensuring the labor market is solid. Fed St. Louis President Alberto Musalem said the central bank must keep downward pressure on inflation, cautioning that interest rates are approaching the level that would no longer provide that pressure.

Last week, Chair Jerome Powell warned that a rate cut in December isn’t a foregone conclusion. Investors are still pricing about a 70% chance of a rate cut.

What Bloomberg strategists say...

There’s also the clear and growing danger that the longest American government shutdown on record will do significant damage to the world’s largest economy. That’s an issue that’s come sharply into view with the Trump government’s order for airlines to reduce capacity, set to spark substantial disruptions for passengers on Friday.

— Garfield Reynolds, MLIV Team Leader. For full analysis, click here. 

Treasuries steadied during Asian trading after 10-year yields had their biggest drop in a month in the previous session.

Elsewhere, a Bloomberg gauge of the dollar edged up 0.1% after sliding the most since mid-October. In commodities, oil inched higher Friday but was set for a second weekly drop, as supply increases around the world heighten concerns about the size of a forming glut. Gold edged up, hovering around the $4,000-an-ounce level.

Meanwhile, China’s exports unexpectedly contracted in October during a period of renewed tensions with the US, dealing a blow to an economy already at risk of a slowdown in the final months of the year.

Back to AI, the sudden focus on the financing needs of OpenAI — the maker of ChatGPT — and other companies in the industry came after remarks from Wall Street executives about frothy tech valuations. 

Their warning fueled jitters in the market earlier in the week, leading to a 2.1% drop in the tech-heavy Nasdaq 100 Index on Tuesday. After recouping some of that loss on Wednesday, the index slid another 1.9% on Thursday. It’s now down almost 4% from its last record on Oct. 29, though still up nearly 20% so far this year.

“The selloff in Asian tech is more a reflection of sentiment than substance,” said Billy Leung, investment strategist at Global X Management. “After several weeks of strong earnings and upbeat guidance, investors have turned cautious amid profit-taking and renewed policy noise.”

Corporate Highlights:

• Novo Nordisk A/S has again increased its offer for Metsera Inc. as its takeover battle with Pfizer Inc. for the obesity startup escalates.
• Airbnb Inc. issued a better-than-expected outlook for the holiday quarter, citing strong demand as US travelers used its recently launched “reserve now, pay later” feature to book trips in advance.
• Qantas Airways Ltd. shares fell after the airline scaled back planned capacity growth after slower-than-expected corporate demand, in one of the first signs of softening appetite for travel in Australia since the pandemic.
• Macquarie Group Ltd. shares tumbled after profit missed expectations as tepid activity at its key commodities and global markets division overshadowed a rebound in investment banking.
• Recruit Holdings Co. gained the most since its 2014 listing, after it reported stronger-than-expected earnings and raised its forecast on robust growth in human resources technology business.
• The White House won’t allow Nvidia Corp. to sell its latest scaled-down AI chips to China, The Information reported.
• Singapore Telecommunications shares rose to the highest since 1993, after it said it’s having ongoing discussions in relation to data-center firm STT GDC.

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.2% as of 1:02 p.m. Tokyo time
• Japan’s Topix fell 1.2%
• Australia’s S&P/ASX 200 fell 0.7%
• Hong Kong’s Hang Seng fell 1.1%
• The Shanghai Composite fell 0.2%
• Euro Stoxx 50 futures fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1537
• The Japanese yen was little changed at 153.04 per dollar
• The offshore yuan was little changed at 7.1259 per dollar

Cryptocurrencies

• Bitcoin rose 0.7% to $101,826.01
• Ether rose 0.3% to $3,335.45

Bonds

• The yield on 10-year Treasuries was little changed at 4.09%
• Japan’s 10-year yield was little changed at 1.675%
• Australia’s 10-year yield declined two basis points to 4.34%

Commodities

• West Texas Intermediate crude rose 0.3% to $59.62 a barrel
• Spot gold rose 0.3% to $3,987.52 an ounce

This story was produced with the assistance of Bloomberg Automation.

©2025 Bloomberg L.P.