Global equitiestumbledTuesday as concerns of inflated valuationsand anuncertain macro environmentgripsinvestorsahead of Nvidia earnings this week.
The pan-European Stoxx 600 traded in negative territory on Tuesday withmining-linked stocks and banks leading Europe’slosses.TheStoxxEurope 600 Technology Indexshed 1.5%,following in the footsteps of U.S. stocks as fears of an artificial intelligence-fueled bubble persist.
The three major U.S. indexes,Dow Jones Industrial Average,theS&P 500and tech-heavyNasdaq Composite,endedtheprevioustrading sessionin the red. On Tuesday, U.S. equities continued to slide, with Wall Street’s major averages all falling into negative territory after the opening bell. Tech stocks posted notable declines, with Nvidia, Palantir, Amazon and Microsoft among the stocks moving lower.
Asia-Pacific markets were also lower on Tuesday, led by declines in Japan and South Korean benchmark indexes.
Mike Gallagher, director of research at Continuum Economics, said the market action implies equities could fall about 5% from recent highs — or “a bit more.”
He told CNBC’s “Squawk Box Europe” that the sell-off is”natural profit taking”followinga strong marketrun since April.
An interactive chart showing Europe’s Stoxx 600 index
It all comes on the backdrop of AI bubble fears and the market holding tight for Nvidia’sthird-quarterearnings, whichare due after Wednesday’s close. Nvidiais seen an important bellwetherfor the AI industry as many ofthelargest players rely on itsGPUs.
The recent earnings seasons shows that the big hyperscalers are still getting lots of revenue coming through 2026-27, Gallagher said, adding that investors are watching Meta closely because without a server business it serves as an indicator of whether the next wave of AI applications can deliver revenue. “That suggests this is just a routine, healthy correction,” he said.
Tema ETF Chief Investment OfficerYuriKhodjamirianput the sell-off down to a “healthy dose ofskepticism” as the market realized that the mega-deals announced over summer need toactually befundedsomehow. He pointed to OpenAI’s“massive announcements of commitments to spending on GPUs, power datacenters,” andsaid”the market is starting to realize that this is going tomaybe bea slower process than they thought in the summer.”
“There is this kind of balancing going on in the market, and this is whatyou’reseeing in some of these shares. Oracle‘s share price is back to where it was pre-the OpenAI announcement, so we thinkit’sreasonably healthy. The dynamics continue, these datacenterbuild outs, whether you listen to MicrosoftMeta, Nvidia, etc,they’reall going in the direction of upwards.Nothing’sreally stopping, so whatwe’reseeing is just a healthy correction, in a way, in the marketplace,”Khodjamirian told CNBC’s Silvia Amaro.
Some major tech companies such as Alphabet and Meta have turned to debt issuances to fund their sprawling AI ambitions. Amazon, for example, undertook its first bond sale in three years according to a Bloomberg report.
“We’re seeing more evidence of vendor financing, of tapping the credit markets, but I think we’re still in the relatively early stages,” David Groman, global equity strategist at Citi, told CNBC’s “Squawk Box Europe.”
The bond market must adjust and react, “spreads need to get a bit wider, dramatically wider,” added Gallagher. “We’re not seeing a big blowout phase in corporate bond spreads,” he added.
Citi has a “bear market checklist” for whether the conditions needed for a long, sustained sell off in global equities are in place, Groman said. It looks at 18 factors including valuation, sentiment and positioning over a three-year rolling basis.
“What it says to us is that maybe eight out of 18 things are flashing red. In some ways, it looks like the past, in 2000 on a valuation basis, but on many other factors, things like fund flows into equities, M&A activity, IPO activity, the real signs of froth are not necessarily there,” he added, stating that it’s still “time to buy the dip” as equity inflows are “still pretty subdued on a longer run horizon.”
However,Gallaghernoted that there isan element of de-risking amid an uncertain macro environment. Investors are uncertain about a previously-expected Fed rate cut in December, he said, adding thatthe central bank will “probably” now pause in the first quarter of 2026.
“Then,all of a sudden, that kind of driverthat’shelped risk is no longer there.We’vealso got the Supreme Court in the U.S. due to judge on Trump’sreciprocaltariffs.It’sactually a50-50 call, whether half of them or all of them are stopped, and that then gets us back into April’s cycle drama about new types of tariffs,”Gallagher said.
“Sothere’ssome things coming over the horizon that make you want to take a bit of risk off the table.So,part of it is just natural pocket taking, part of it is thinking,’well, is the macro story going to be perfect? No,it’snot,'”headded.
“To get a major sell off, you may need major bad news, and that we haven’t actually got to that point yet,”Gallagher said.
There is some exaggeration in cryptocurrencies due to leverage,headded. Bitcoin has shed around 25%since its October high, and Ether has dropped 35% since its August high.Industry experts told CNBCthatthe sector is facing pressures from bothaninitialmacro-driven sell-offandforced liquidations.
Khodjamirianis taking a multi-year view. The CIO said one looming problem is access to electricity. “There’s a realization from executives around, in the United States and in the world, that you need to provide power to these datacenters. That is going to be a big, big problem, and that potentially slows down the build out as more power needs to be built,” he said.
“We thinkit’sthe biggest problem and the biggest bottleneck for building out the AI revolution, but also other things like the rebuilding of the industrial base, both in Europe and in the United States, electric vehicles, digital currencies,” he added.