The recent slump in U.S. technology stocks has laid bare just how much the markets hinge on the optimism surrounding artificial intelligence, according to a Monday update from Capital Economics. The report pointed out that this decline has pretty much overshadowed any potential progress related to the U.S. government shutdown.
Despite the market’s turbulence, the firm believes there’s not much evidence indicating that the AI boom is stalling. It sees the stock sell-off more as a mood-driven adjustment rather than a signal that something serious is amiss. Deputy Chief Markets Economist Jonas Goltermann stated, “There’s little in the fundamentals that points to a looming collapse of the AI ‘bubble.'”
Interestingly, Goltermann observed that this downturn didn’t seem sparked by any specific event, yet it notably impacted high-valuation tech companies—even those posting strong earnings. He mentioned that this trend illustrates investor concerns regarding whether AI-led growth can sustain itself amid rising expenses tied to the expanding data center race.
“Market sentiment is pretty unpredictable, especially when optimism runs high,” he remarked, adding that this recent pullback shows just how sensitive tech stocks have become to developments in the AI sector.
He also compared this decline to recent weaknesses seen in gold and cryptocurrencies, framing it as part of a wider correction affecting speculative assets. Nonetheless, he reassured that the foundation of the AI narrative remains solid and is likely to encounter more volatility in riskier parts of the market.
On the political side of things, Goltermann didn’t think the government shutdown holds much weight for investors, labeling it as more of a “sideshow.” He noted that shutdowns rarely inflict lasting economic harm and that this one, despite being the longest recorded, seems to have had little effect on market sentiment.
Since mid-September, Treasury yields and the dollar have shown slight recovery, suggesting that investors are becoming “a bit more optimistic” about the economy. Goltermann remarked, “With a deal seemingly in sight in the Senate, [the shutdown] seems like it’s close to wrapping up. If it does come to an end soon, we don’t expect it to significantly influence the stock market.”
In wrapping up his note, Goltermann concluded, “We anticipate that tech remains the focal point: the almost-inevitable end of the shutdown is largely irrelevant for the markets.”
