Bond markets gained strength as equities retreated, driving increased demand for U.S. Treasuries
Global stock markets saw notable declines on Wednesday, as fears about stretched valuations weighed heavily across key indices, with a cautious investor stance prevailing after a recent rally driven largely by artificial intelligence (AI) optimism. While dips were seen in U.S. and European equities, Asian markets, particularly Japan’s Nikkei 225, experienced sharp corrections, underlining growing nervousness about the sustainability of recent gains.
U.S. markets: Tech stocks lead declines
U.S. equity markets showed mixed to negative performance as major indices faced selling pressure, especially in the technology sector. The S&P 500 slipped 1.17 percent to 6,771.55, reflecting a pullback after the index’s strong rally earlier in the year that had pushed it up nearly 40 percent from April lows. The tech-heavy Nasdaq Composite dropped 2.04 percent to 23,348.64, with large-cap names such as Tesla and Nvidia falling by 5.2 percent and 4.0 percent respectively. Notably, Palantir Technologies, despite reporting positive financial results and boasting a year-to-date gain of over 150 percent, plunged 7.9 percent amid investor concerns over its lofty valuation.
The Dow Jones Industrial Average fared slightly better but still declined by 251.44 points, or 0.53 percent, closing at 47,085.24. Financial sector stocks showed relative resilience amid the tech sell-off. Overall, trading volume was lower than the recent twenty-day average, with declining issues outpacing advancing ones across major exchanges, signaling a cautious market mood.
Market participants are increasingly wary of the S&P 500’s forward price-to-earnings ratio, which has climbed to 23.1 times, a premium to the five-year average of 19.9 times and the highest since September 2020. This elevated valuation has sparked fears that the recent rally is concentrated in a narrow group of high-flying stocks vulnerable to a correction if interest rates remain elevated longer than expected.
European markets: Broad-based sell-off amid earnings warnings
European stocks followed a similar downward trajectory, with the Euro Stoxx 50 index falling 0.72 percent to around 5,660.20 points. The broader European STOXX 600 declined by approximately 0.30 percent, weighed down by disappointing corporate earnings and cautious outlooks. Technology, industrials, and consumer discretionary sectors saw the worst declines.
Several large caps struggled, including Telefónica, which plunged more than 8 percent after announcing plans to halve its 2026 dividend. Edenred also fell sharply by 8.5 percent, projecting a slowdown in its annual core profit. Meanwhile, megacap companies such as ASML Holding, LVMH, SAP, and Novo Nordisk posted declines ranging from 0.5 percent to 2.2 percent. Only a few firms bucked the trend, such as BP, which gained 0.5 percent following stronger-than-expected profits, and Philips, up slightly on forecast-met revenues.
Overall, investor caution in Europe was driven by geopolitical uncertainties and mixed earnings reports. There is a wait-and-see approach regarding central bank policies. Additionally, the European market’s recent rally is showing signs of fatigue.
Asian Markets: Nikkei 225 corrects sharply on global sentiment
Asia mirrored the global risk-off tone on Wednesday, with Japan’s Nikkei 225 experiencing a marked correction. After hitting a record peak of 52,664 on November 4, the index dropped 2.33 percent, testing a critical support zone near 50,297.00. This sharp pullback was partly sparked by bearish sentiments in the U.S. tech sector. These sentiments significantly influence Japanese stocks, especially those linked to AI and technology.
Despite solid fundamentals in Japan, including a rising Economic Surprise Index, the Nikkei’s momentum was curtailed this week. The government has promised to unveil a proactive growth strategy by next summer. However, the negative feedback loop from U.S. market jitters had a significant impact. Technical indicators suggest the correction could set the stage for a short-term bullish reversal if the support zone holds.
Bonds, currencies, and cryptocurrencies
With equities retreating, bond markets strengthened, as investors sought safety in U.S. Treasuries. The yield on the 10-year U.S. Treasury note fell by three basis points to 4.05 percent, reflecting increased demand. In currency markets, the Japanese yen appreciated against the U.S. dollar, reaching 153.24 yen per dollar, benefitting from safe-haven flows.
Meanwhile, cryptocurrencies continued their decline amid the broader risk aversion. Bitcoin fell below $100,000 (currently trading at $101,753.91), entering bear market territory after a steep retreat from its recent highs, further underscoring investor caution around high-volatility assets.