06/01/26

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Market sentiment took a significant hit yesterday, reflecting ongoing concerns about overstretched valuations in the technology sector, a narrowing rally, and fears surrounding the sustainability of Big Tech’s growth. Investors continue to grapple with the revival of dot-com bubble comparisons, fueled by rising valuations and circularity concerns. Additionally, the prospect of a slowdown in the US economy, coupled with persistent inflationary pressures and ambiguous official data releases, has heightened market uncertainty.

Despite this pervasive unease, major US indices have demonstrated resilience, reaching levels not seen since April. While a correction of 10-20% is within the realm of possibility, according to some market observers, it’s not an inevitable trajectory. Conditions remain mixed: recent earnings reports have exceeded expectations, and potential shifts in Federal Reserve policy — such as halting quantitative tightening — could provide additional liquidity to markets. Moreover, the Fed has been increasing liquidity through reverse repurchase agreements, and the People’s Bank of China has resumed bond purchases to stimulate growth.

In the corporate sphere, technology firms continue to forge new strategic partnerships, with Nvidia expanding collaborations beyond the US, including recent ventures with Deutsche Telekom. While the market reacts cautiously to strong earnings from big tech companies, the rising VIX index indicates growing market stress. Some high-profile investors are taking bearish positions, notably betting against AI-driven companies like Palantir and Nvidia, reflecting heightened risk aversion.

Earlier declines in the S&P 500 and Nasdaq followed Palantir’s impressive earnings, which failed to spark fresh buying interest. Valuations of certain growth stocks, especially those within the so-called Magnificent 7, appear stretched — raising concerns of an imminent correction. While valuations for these stocks remain high, they are not generally so extreme as to suggest an outright bubble, and many large technology firms maintain healthy profit margins and growth prospects.

Earnings results from companies such as AMD have also shaped market sentiment. Despite reporting strong revenue growth, AMD’s shares declined post-results, highlighting ongoing investor skepticism. Meanwhile, in commodities and currencies, gold has drifted lower, acting more as a risk-on asset, while Bitcoin struggles to serve as a safe haven, testing levels around the $100,000 mark on the downside.

The US dollar, after a period of decline, has regained strength amid widespread risk aversion, with the euro, British pound, and Australian dollar all weakening against it. The yen also experienced a brief rebound following comments from Japan’s Finance Minister, although near-term momentum favors further dollar gains. Market participants will now shift focus to upcoming economic data releases, including services PMI figures and corporate earnings from McDonald’s, Qualcomm, and Arm Holdings, which will offer additional clues on market direction.