Global Markets Brace for Volatility Amid Geopolitical Tensions and Economic Uncertainty
Translated & summarized from Globes by baba
Global markets face a volatile week due to geopolitical tensions, high oil prices, and concerns over AI company debt, with upcoming elections adding to uncertainty. The Israeli stock market is expected to open lower, while US markets saw significant drops in tech and AI stocks. Israeli inflation surprised positively, but a rate cut is unlikely, whereas US inflation exceeded expectations, fueling debate about potential Federal Reserve rate hikes. Investment banks are cautioning investors against buying dips in technology stocks amidst these mixed economic signals.
The story in 6 lines · by baba
- Global markets are entering a challenging week marked by geopolitical tensions, high oil prices, and AI debt concerns.
- US tech and AI stocks experienced sharp declines, with the S&P 500 and Nasdaq posting their worst weekly performance since June.
- Israeli inflation data for September surprised positively, but a rate cut by the Bank of Israel this week is considered unlikely.
- US inflation exceeded forecasts, leading to speculation about potential future interest rate hikes by the Federal Reserve.
- Major investment banks are advising investors against buying the dip in technology stocks due to market weakness and debt concerns.
- Oil prices surged amid increased attacks in the Strait of Hormuz and ongoing regional conflicts.
Global markets are entering a challenging week, following sharp declines in chip stocks on Wall Street. Geopolitical tensions, high oil prices, and near-decade high bond yields are compounded by concerns over the massive debts taken on by AI companies. Upcoming elections in Israel and the US midterms are also expected to fuel increased volatility.
In Israel, the stock market is anticipated to open lower, with dual-listed stocks showing a negative arbitrage gap. Tower Semiconductor, Nova, and Camtek are expected to be particularly affected, along with Palo Alto Networks due to a broader cyber security sell-off. Despite the negative sentiment from Wall Street, the Tel Aviv Stock Exchange (TASE) concluded the previous week with gains, with the TA-35, TA-90, and TA-125 indices rising approximately 4%, 5%, and 4.2% respectively. The construction index led the rally with a 9.7% increase.
In the US, technology and AI stocks dragged down the market, with the S&P 500 and Nasdaq experiencing their weakest weekly performance since June. The VIX fear index rose above 22 for the first time in four months. The SOXX semiconductor ETF saw its steepest weekly drop since March 2025, entering bear market territory. Investor concerns about the substantial debt incurred by tech companies for AI infrastructure were a key factor, with cloud computing firm CoreWeave's stock falling 25% amid rising bond yields.
Lorenzo Di Mattia, Chief Investment Officer at Sibilla Capital, warned that AI expansion plans will inevitably slow down as credit and capital costs become unsustainable. Paul Marino of Themes ETFs noted that high US Treasury yields, around 5%, make government bonds a significant alternative for risk-averse investors, impacting growth company valuations. Violetta Todorova of Leverage Shares suggested that falling bond yields could signal economic slowdown if driven by growth fears rather than moderating inflation.
Oil prices surged, with Brent crude nearing $110 a barrel and WTI exceeding $101, driven by increased Iranian attacks on tankers in the Strait of Hormuz and ongoing conflicts involving Saudi Arabia, Houthis, Russia, and Ukraine. The Israeli Shekel weakened by 1.7% against the dollar, reaching its highest level in six months.
Israeli inflation data for September surprised positively with a 0.5% decrease, leading to a lower-than-expected annual inflation rate of 1.6%. However, economists believe a rate cut by the Bank of Israel this Wednesday is unlikely. In contrast, US inflation data exceeded forecasts, with the Consumer Price Index rising 0.6% monthly and 3.7% annually. Core inflation also rose more than expected. Despite this, traders anticipate the Federal Reserve will hold rates steady at its next meeting, with a high probability priced in for a December rate hike.
Two major US investment banks advised against buying the dip in tech stocks. Craig Johnson of Piper Sandler cited broad market weakness and a lack of participation in rallies. Bank of America moved to a "risk-off" stance for the upcoming month, citing tech stock declines, AI debt concerns, high bond yields, and upcoming elections. Michael Hartnett, Bank of America's Chief Strategist, however, predicted a Fed rate hike in October to restore credibility, which he believes would limit declines in risk assets.
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