AI worries trigger another tech selloff

General market commentary

On Friday, equity markets retreated from recent record highs, led lower by a pullback in mega cap technology shares that weighed on the Nasdaq, which fell around 1.7 percent. Weakness followed post earnings declines in names such as Broadcom, where despite results beating expectations, concerns around profitability and the pace of future AI related growth triggered a sharp sell off after a strong rally earlier in the year. The session had a clear risk off tone, with defensive sectors including consumer staples and health care outperforming, while bonds also fell as the 10 year US Treasury yield rose towards 4.2 percent.

Over the past week, equities showed signs of rotation rather than broad weakness. While the largest technology shares lagged, other parts of the market performed more strongly, with small cap and equal weight indices touching new highs before easing back at the end of the week. This shift was supported by the Federal Reserve’s latest rate cut and a generally balanced policy message, which reassured investors that further easing remains possible if the labour market weakens. As a result, interest rate sensitive areas of the market outperformed, highlighting a broadening of market leadership and reinforcing the case for diversification as the year draws to a close.

Latest market and economic update

Asian equity markets mostly fell on Monday, led by sharp declines in technology shares after weak guidance from US firms reignited concerns over AI driven valuations. China was relatively resilient but remained pressured by soft economic data and property sector worries, while South Korea, Japan and Hong Kong underperformed.

U.S. equity index futures were mixed overnight as investors remained cautious towards technology equities following weak guidance from Broadcom and Oracle. Focus this week is on November’s consumer price index data, which could shape expectations for future Federal Reserve interest rate decisions, while the Fed’s Treasury purchases signal a dovish outlook for 2026.

European equities closed lower on Friday, with the Stoxx 50 and Stoxx 600 both down 0.5%, pressured by a tech-driven Wall Street selloff. Dutch semiconductor shares fell sharply, with ASML down 1.8%, ASMI 4.9% and BESI 3.5%, while French private equity Wendel rose 5% after announcing a €1.6 billion plan to return capital to investors.

The dollar held near a two-month low at 98.37 on Monday, while the euro was largely steady at $1.1736 ahead of this week’s ECB decision. Investors remain cautious ahead of key US inflation and jobs data, interpreting the greenback’s weakness as partly driven by delayed economic releases and a divided Federal Reserve outlook.

Oil prices edged higher in early Asian trading after steep weekly losses, but gains were limited by concerns over a global supply surplus and weak demand. Rising output, high inventories and subdued growth in China and Europe continued to weigh on sentiment, despite some support from geopolitical tensions involving Ukraine and Venezuela.

China’s economy slowed in November, with industrial output rising 4.8% and retail sales just 1.3%, the weakest growth in over a year. Weak domestic demand, a persistent property slump, falling car sales, and shrinking investment highlight structural challenges. Rising global trade tensions and fading consumer subsidies further complicate Beijing’s efforts to sustain growth and meet its 2026 targets.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Nvidia is considering expanding production of its H200 AI chips to meet strong Chinese demand following U.S. approval for exports with a 25% fee. Major firms like Alibaba and ByteDance have expressed interest, though China has yet to approve purchases. Supply constraints and competition for TSMC capacity complicate any capacity increase.

SpaceX has begun selecting Wall Street bankers to advise on a potential initial public offering, which could value the company at over $1 trillion. CEO Elon Musk confirmed the plans, with employees informed last week. The firm, a major U.S. government contractor, has also seen success with its Starlink satellite internet business.

Eli Lilly’s next-generation obesity drug, retatrutide, helped patients lose an average 28.7% of their weight in a late-stage trial, outperforming Zepbound. The triple-G therapy also eased knee pain, though higher doses caused more trial discontinuations and gastrointestinal side effects. Lilly plans seven further late-stage trials in 2026, reinforcing its leadership in the obesity market.

UBS shares rose on Friday after Swiss lawmakers proposed easing capital requirements, allowing the bank to meet part of its needs via additional Tier 1 bonds instead of solely equity. UBS welcomed the move, describing it as more constructive than earlier stricter Federal Council recommendations, while warning that tighter rules could harm Switzerland’s competitiveness.

A California jury awarded $40 million to two women who claimed Johnson & Johnson’s talc-based baby powder caused their ovarian cancer. The verdict found the company knew of potential risks for decades but failed to warn consumers. J&J plans to appeal, maintaining its products are safe and asbestos-free, having ceased US talc sales in 2020.

Strategy, the bitcoin-focused company formerly known as MicroStrategy, retained its place in the Nasdaq 100 despite concerns over its business model and sensitivity to bitcoin fluctuations. The Nasdaq announced other index changes, with several companies removed and new entrants added, while MSCI will decide in January whether to exclude crypto treasury firms from its benchmarks.

German defence firm Hensoldt signed a long-term framework agreement to supply radar systems to Rheinmetall’s air defence division. Valid until the 2030s, the contract, worth potentially high three-digit millions, allows flexible delivery schedules, strengthening collaboration between the two manufacturers amid rising demand for ground-based air defence capabilities.

J.P. Morgan upgraded Citigroup to overweight, raising its price target to $124 from $107, citing CEO Jane Fraser’s turnaround, stronger risk controls, and targeted investments. Investor optimism has lifted Citi shares 59% this year, though valuation trails peers. Analysts expect U.S. banks to benefit from a solid economy, favourable regulation, and ongoing consolidation in 2026.

Mizuho upgraded Broadcom to “Outperform” and raised its price target to $450, citing strong AI momentum and a $162 billion backlog. AI revenue rose 25% quarterly to $6.5 billion, with fiscal 2026 AI sales projected to jump 126% to $45 billion. Broadcom benefits from expanding hyperscaler demand and new major customers.

Evercore reiterated Alphabet’s “Outperform” rating, noting Google’s search market share rebounded to 76% in November. AI integrations, including Gemini 3.0, enhanced search experience and revenue. Despite strong 2025 gains of 65%, Alphabet remains a “core net long,” with analysts forecasting 20% EPS growth supporting a 25–30X P/E multiple and potential further upside.

Baird downgraded PayPal to Neutral, citing soft Q4 transactions, rising credit losses, and a heavy 2026 investment cycle delaying branded checkout gains. Management’s efforts in Venmo, alternative payments, and agent-driven commerce support long-term growth, but near-term recovery is limited, with earnings resets and e-commerce risks weighing on the share.

Lufthansa shares hit a two-year high after Kepler Cheuvreux upgraded the airline to buy, raising its price target to €11 from €7.50. Analysts cited a 2.5-billion-euro turnaround programme, cost reductions, operational streamlining, and potential industry tailwinds, noting challenges remain but upside potential and medium-term earnings growth make the risk/reward profile positive.

Goldman Sachs forecasts S&P 500 earnings per share rising 12% to $305 in 2026 and 10% to $336 in 2027, supported by U.S. growth, a weaker dollar, and AI-driven productivity. Tech giants including Nvidia, Apple, and Microsoft are expected to lift collective earnings 29%, while broader AI adoption boosts overall index profitability gradually.

Upcoming data and events

Next week’s calendar features delayed US labour data, including non-farm payrolls and the jobless rate, alongside October retail sales, November inflation, and December S&P Global PMIs. Investors will monitor central bank activity, with ECB, BoE, and BoJ rate decisions and Fed speeches, plus key inflation and PMI updates across Canada, the UK, Australia, Japan, India, Germany, France, and the Eurozone.

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