Stocks drop, as investors fret over tech valuations; gold rallies

US e-mini futures slid 0.1%, suggesting Tuesday's 1.2% drop for the S&P 500 may continue

Stocks fell on Wednesday, as a selloff in global tech shares dragged down markets from Tokyo to Frankfurt, driving volatility to highs not seen since April and helping underpin safe-haven assets like gold and government bonds.

Asia stocks were hit particularly hard overnight, pushing Japan's Nikkei down nearly 7 per cent from Tuesday's record highs at one point, while shares in South Korea plunged as much as 6.2 per cent before clawing back some losses to be down 2.9 per cent.

In Europe, tech was the worst-performing sector of the STOXX 600, which dropped 0.2 per cent on the day, while Germany's DAX fell 0.3 per cent and Amsterdam's AEX index, home to Nvidia supplier ASML fell 0.1 per cent.

 

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US e-mini futures slid 0.1 per cent, suggesting Tuesday's 1.2 per cent drop for the S&P 500 may continue.

STOCKS RETREATING FROM RECORD HIGHS

Stocks are retreating from record highs on fears equity markets may have become overstretched after the CEOs of Wall Street heavyweights Morgan Stanley and Goldman Sachs questioned whether sky-high valuations can be sustained.

Lombard Odier economist Samy Chaar said the overall backdrop remained supportive of equities, given that interest rates will continue to fall, while economic growth mostly holds up.

"Statistically speaking, we've had a couple of good years, so there is some anxiety here. The data's still OK, governments are spending, central banks are cutting," he said.

"Earnings are (around) 9 per cent above what was expected initially. The private sector is doing well. Of course, valuations are super, super demanding. So there is no room for comfort or error here," he said.

Last month, banking giant JPMorgan Chase's CEO Jamie Dimon had warned of a heightened risk of a significant correction in the US stock market within the next six months to two years.

The warnings come as a surge in enthusiasm for generative AI has swept across stock markets worldwide this year, drawing comparisons to the dotcom bubble.

"At some point, profits need to be booked. Especially when we've seen repeatedly solid runs to record highs," said Matt Simpson, senior market analyst at StoneX in Brisbane. "Those with money on the line aren't likely seeking answers right now - they're just copying each other like kids in an exam. And the answer is to run."

In premarket trading, shares in AMD and Super Micro Computer fell 4.5 per cent and 6.8 per cent, respectively, while Big Tech shares showed more stability, with Meta up 0.3 per cent and Nvidia down 0.8 per cent.

Chinese shares rose 0.2 per cent as the State Council's tariff commission said it would suspend its 24 per cent additional tariff on US goods for one year but retain a 10 per cent levy following last week's meeting between President Xi Jinping and US President Donald Trump.

In currencies, the dollar was also steady, having fallen overnight against the safe-haven yen before paring those losses to trade at 153.695, almost unchanged on the day, after the release of minutes from the Bank of Japan's September policy meeting.

The euro was last a shade firmer at $1.1491, having hit a three-month low following five straight days of declines, while the pound was up 0.2 per cent at $1.304, after dropping to its lowest since April the day before, after finance minister Rachel Reeves seemingly paved the way for tax rises in her upcoming budget in a speech on Tuesday.

Among safe-haven assets, gold rose nearly 0.85 per cent to $3,965 an ounce, while US Treasury prices also retained some of their overnight gains, which kept the yield on benchmark 10-year notes steady at 4.09 per cent.

Bitcoin briefly fell below $100,000 for the first time since June in choppy trading. It was last up 2.3 per cent at $102,582.

(Additional reporting by Gregor Stuart Hunter in Singapore; Editing by Peter Graff and Hugh Lawson)