AI concerns pressure US futures

General market commentary

European equities closed modestly higher on Monday as investors steadied after last week’s sell-off, which had been sparked by fears over artificial intelligence disrupting traditional industries. The STOXX 600 gained around 0.3%, boosted by a strong rebound in the heavyweight banking sector, which had experienced significant losses amid concerns that AI could negatively impact financial profitability. While financial shares provided support, gains were pared towards the end of the session as technology and luxury sectors came under pressure, reflecting lingering investor caution. Overall, trading volumes were relatively light, influenced by the Lunar New Year holiday in Asia and Presidents Day in the U.S., which limited cross-border activity and contributed to subdued market momentum.

Across Europe, performance among sectors and major indices remained mixed, with banks and insurers leading the way while basic materials, industrials, and some consumer discretionary shares lagged behind. Investors continued to monitor corporate earnings announcements and forward-looking guidance, seeking signals on the health and resilience of European companies in the face of AI-related disruption, rising costs, and geopolitical uncertainties. Macro developments, including eurozone industrial production data and policy signals from central banks, also influenced sentiment, as did ongoing discussions around fiscal stimulus and energy markets. While the overall tone was cautiously optimistic, market participants appeared to remain selective, favouring defensive sectors and high-quality equities as they weighed both risks and opportunities in the weeks ahead.

Latest market and economic update

Asian markets traded mixed in holiday-thinned conditions. Japan’s Nikkei 225 and TOPIX each fell 0.9% after weaker-than-expected fourth-quarter GDP data, with technology and industrial shares, including SoftBank, under pressure. Australia’s ASX 200 gained 0.3%, driven by a near 7% surge in BHP following strong half-year earnings. Several regional markets remained shut.

US equity index futures dipped in holiday-thinned trade, with Nasdaq 100 falling 0.8% to 24,604, S&P 500 down 0.5% to 6,820, and Dow Jones 0.3% lower at 49,417. Investors remained cautious over technology stocks and AI developments, while awaiting key economic data and the Federal Reserve’s January meeting minutes for guidance on interest rates.

The US dollar held steady against a basket of currencies, with the dollar index at 97.12, after modest gains in the previous session. The euro eased slightly to $1.1843 as markets awaited Federal Reserve signals on potential rate cuts. Investors remain focused on US economic data and upcoming Fed minutes for guidance on monetary policy.

Oil prices edged lower in thin trade, with Brent down 0.3% and WTI volatile after a US holiday. Markets focused on renewed US-Iran nuclear talks in Geneva amid heightened geopolitical tensions and military deployments. A firmer dollar also weighed on crude ahead of key US data, including PCE inflation and Federal Reserve minutes.

Equities on the move

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

Activist investor Elliott Investment Management has built a stake of over 10% in Norwegian Cruise Line Holdings and intends to press for operational and boardroom changes. The company’s shares have fallen more than 11% this year, underperforming Royal Caribbean Group and Carnival Corporation, amid softer profit guidance and a recent chief executive change.

Warner Bros Discovery is weighing whether to revisit sale talks with Paramount Skydance after the rival sweetened its hostile bid, offering quarterly cash payments from 2027 and covering Warner Bros’ $2.8 billion Netflix breakup fee. The board has not decided, while activist investor Ancora Holdings opposes the current Netflix deal, citing insufficient engagement with Paramount.

BHP Group Ltd reported a 22% rise in first-half underlying profit to $6.20 billion, driven by a 32% surge in realised copper prices. Copper contributed a larger share of earnings than iron ore, although iron ore production reached record levels. The miner also agreed a $4.3 billion silver supply deal with Wheaton Precious Metals separately.

Activist investor Starboard Value is planning a major overhaul of Tripadvisor’s board, preparing to nominate a majority slate for its eight-member board. Holding more than 9%, Starboard aims to push strategic changes, including a potential sale of its restaurant booking platform, after Tripadvisor’s shares plunged nearly 46% over the past year following weak fourth-quarter results.

Elon Musk’s SpaceX and its subsidiary xAI are competing in a secret $100 million Pentagon contest to develop voice-controlled, autonomous drone swarming technology. The six-month challenge aims to translate voice commands into drone operations, follows Musk’s acquisition of xAI, and comes ahead of SpaceX’s planned IPO this year.

Volkswagen plans to cut costs by 20% across all brands by 2028 to offset higher expenses, a weak Chinese market, and U.S. tariffs, Manager Magazin reported. The group aims to save billions, including 1 billion euros by consolidating management and production. No plant closures or layoffs for operational reasons are planned, while 35,000 German jobs will be reduced by 2030.

U.S. hedge fund Third Point has acquired a stake in Spanish defence company Indra and backs chairman Angel Escribano’s plan to buy smaller rival Escribano Mechanical & Engineering. The move, which has raised conflict-of-interest concerns among some shareholders, is seen by Third Point CEO Dan Loeb as an opportunity to create a leading Spanish defence champion.

Dassault Systèmes shares dropped by 10% after AlphaValue downgraded the French software firm to “reduce,” citing weak growth and uncertainty over AI monetisation. The company’s 2026 growth is now projected at 3–5%, amid macroeconomic pressures and currency effects. The sell-off reflects broader market fears that AI could disrupt software business models and compress profitability.

NatWest Group shares rose 4.8% after UBS upgraded its earnings forecasts following strong Q4 results. Pre-tax profit exceeded consensus by 7%, with net interest income 3% above expectations and impairments 30% lower than forecast. UBS highlighted robust loan and deposit growth, improved net interest margin, and a CET1 ratio of 14%, supporting achievable 2028 targets.

German shipping company Hapag-Lloyd is in advanced talks to acquire Israeli rival Zim Integrated Shipping Services, though no binding deal exists. Regulatory hurdles remain, as Israel holds a “golden share” in Zim. Hapag-Lloyd plans to involve private-equity firm FIMI Opportunity Funds, with approvals needed from the government, shareholders, and regulators.

Citigroup analysts say US equities remain in a bull market but with rising volatility, as artificial intelligence raises long-term valuation risks. The S&P 500 is range-bound, masking sharp sector swings. Investors are questioning margins, valuations and business models, keeping stock-specific volatility elevated despite steady headline index levels overall.

Analysts at Wedbush Securities say the technology sell-off is overdone, arguing the AI investment cycle is still early in a projected 10-year buildout. They expect capital spending to reach $650 billion by 2026. Weakness in Microsoft and others reflects short-term caution, not fading long-term AI-driven growth prospects.

J.P. Morgan reiterated its overweight rating on Roku after strong fourth-quarter results. Revenue rose 16% to $1.40 billion, with platform growth accelerating and profitability beating guidance. The company issued upbeat 2026 forecasts, lifted free cash flow targets and EPS estimates, and continued share buybacks, reinforcing confidence in sustained growth.

Jefferies upgraded ACS Actividades de Construcción y Servicios to “buy,” raising its price target to €116, citing undervaluation of its greenfield infrastructure portfolio. Data-centre, express-lane, and energy projects support growth, with hyperscaler demand boosting revenue. ACS’s enterprise value is projected to grow 13–14% annually to 2030, with 2026 results above consensus.

Upcoming data and events

On Tuesday, key economic data include the UK unemployment rate, Germany’s ZEW sentiment, US Empire State Manufacturing and NAHB housing indices, and Canada’s inflation rate. Major corporate earnings are expected from Medtronic, Palo Alto Networks, Cadence Design, Coca-Cola Europacific Partners, and Kenvue.

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