The narrative that AI would drive everything had frayed.
After nine weeks of AI-fueled optimism lifting equity markets across the globe, Asian trading floors opened Monday to a sobering reversal — a reminder that no rally is immune to the gravity of rising borrowing costs and geopolitical fire. South Korea's KOSPI fell 8 percent in a single session, semiconductor stocks led a broad selloff, and the Federal Reserve's shadow loomed larger after a strong jobs report rekindled fears of rate hikes. What markets are now weighing is an ancient question dressed in modern terms: was this a necessary exhale, or the first breath of a longer contraction?
- South Korea's KOSPI plunged 8% in a single session — severe enough to trigger an automatic trading halt — and has now surrendered 17% of last week's peak gains, with semiconductor stocks at the center of the collapse.
- A stronger-than-expected U.S. jobs report shattered the assumption that the Fed would stay patient, sending two-year Treasury yields surging and forcing investors to reprice the future earnings of unprofitable AI-driven companies.
- Bitcoin suffered its worst weekly decline since the FTX collapse, falling roughly 16% to just under $63,000, signaling that the risk-appetite that had carried speculative assets higher is now retreating across the board.
- Israeli strikes on Beirut and Iranian missile retaliation pushed Brent crude up 2.6% to $95.45 a barrel, layering geopolitical volatility onto an already fragile market moment.
- The coming week carries compounding pressure points — U.S. inflation data Wednesday, central bank meetings in Canada and Europe, and the SpaceX IPO expected to absorb enormous capital that may be pulled from existing positions.
Monday morning arrived in Asian markets like a cold correction after weeks of euphoria. The artificial intelligence rally that had powered equities for nine consecutive weeks ran into a wall, and the selling was swift. South Korea's KOSPI dropped 8 percent in a single session — enough to trigger an automatic 20-minute trading halt — and had by then already surrendered nearly 17 percent of the gains accumulated just the prior week, with semiconductor manufacturers bearing the heaviest losses.
The trouble had begun Friday, when the Nasdaq fell 4.2 percent after a stronger-than-expected U.S. jobs report raised the prospect of Federal Reserve rate hikes. The logic was straightforward and brutal: higher borrowing costs make the distant future earnings of unprofitable tech companies less valuable today. Two-year Treasury yields jumped more than 11 basis points. The AI narrative, which had seemed almost self-sustaining, had frayed at its edges. Japan's Nikkei fell 3.5 percent in early trading, the dollar strengthened against the yen, and Bitcoin — which had ridden the same wave of speculative enthusiasm — posted its worst weekly decline since the collapse of FTX in 2022, falling around 16 percent to just under $63,000.
BNY's Bob Savage put the central question plainly: was this a healthy pause, or had the market found its top? The answer would be shaped in part by what came next. SpaceX was preparing to price a massive IPO by Thursday, with Anthropic and OpenAI listings also in the pipeline. Brokers worried openly that the capital required for these offerings would have to come from somewhere — likely drawn out of existing positions.
Geopolitical risk compounded the unease. Israeli strikes on Beirut prompted Iranian missile launches at Israeli targets, pushing Brent crude up 2.6 percent to $95.45 a barrel, even as OPEC+ announced a fourth consecutive output increase in an attempt to temper prices. With U.S. consumer price data due Wednesday and central bank decisions pending in Canada and Europe, every headline and data point carried unusual weight — markets searching for any signal about whether the AI story was merely resting, or quietly ending.
Monday morning in Asian markets opened to a reckoning. The artificial intelligence rally that had powered equities for nine weeks straight hit a wall, and the selling was swift and concentrated. South Korea's KOSPI, weighted heavily toward semiconductor manufacturers, dropped 8 percent in a single session—enough to trigger an automatic 20-minute trading halt. By the time the dust settled, the index had surrendered nearly 17 percent of the gains it had accumulated just the week before.
The pullback had been building since Friday. The Nasdaq fell 4.2 percent that day after a stronger-than-expected jobs report raised the specter of Federal Reserve interest rate hikes. Investors who had been chasing AI stocks with abandon suddenly faced a harder calculation: if borrowing costs were about to rise, the future earnings of unprofitable tech companies looked less attractive. Two-year Treasury yields jumped more than 11 basis points on the news. The narrative that artificial intelligence would drive everything—valuations, growth, returns—had frayed.
Japan's Nikkei fell 3.5 percent in early trading, though U.S. stock futures showed modest gains, suggesting the selling might not be uniform across all markets. The dollar strengthened against the yen, a typical move when risk appetite contracts. Bitcoin, which had ridden the AI wave higher, suffered its worst weekly decline since the collapse of FTX in late 2022, falling about 16 percent and settling just under $63,000.
Bob Savage, head of markets macro strategy at BNY, framed the question that now preoccupied traders: was this a healthy pause in the rally, or had the market hit a top? The answer would shape the week ahead. SpaceX was preparing for a giant initial public offering, expected to price Thursday and begin trading Friday. Anthropic and OpenAI had similar listings in the pipeline. The sheer capital these offerings would require raised a concern among brokers—that money had to come from somewhere, and it might drain from other assets.
Geopolitical risk added another layer of uncertainty. Israeli strikes on Beirut prompted Iran to launch missiles at Israeli targets, sending oil prices higher. Brent crude futures rose 2.6 percent to $95.45 a barrel. OPEC+ had just agreed on Sunday to increase output targets for the fourth time in as many months, a sign that producers were trying to manage price pressures even as tensions in the Middle East kept the market on edge.
The week ahead would test whether the selloff was temporary or the beginning of something larger. U.S. consumer price data was due Wednesday. Central banks in Canada and Europe were meeting. The dollar held above 160 yen. The euro hovered at $1.1518. The Australian dollar had been pushed to $0.7038. Every number, every decision, every headline from the Middle East would now carry weight as investors tried to determine whether the AI story was pausing or ending.
Citas Notables
The AI-drives-everything narrative frayed last week. Whether this is a healthy pause in the nine-week equity rally or a top remains the key question.— Bob Savage, head of markets macro strategy at BNY
La Conversación del Hearth Otra perspectiva de la historia
Why did semiconductor stocks lead the decline? They seemed to be the whole point of the AI rally.
They were. But when interest rates might go up, the math changes. Semiconductor companies are expensive relative to their current earnings because investors were betting on future AI demand. Higher rates make that future worth less in today's dollars.
So it's not that people stopped believing in AI?
Not exactly. It's that they stopped believing AI companies could grow into their valuations before the cost of capital made those bets unaffordable. The jobs report spooked people about the Fed.
And the Middle East situation—does that actually matter for markets, or is it just noise?
It matters because oil is real. When tensions spike, crude goes up, and that feeds into inflation expectations, which feeds back into rate hike expectations. It's all connected.
So the AI rally was fragile?
Nine weeks is a long time to move in one direction without a break. The question now is whether this is a break or a break-up.