Markets slip as AI bubble fears and jobs uncertainty weigh on risk appetite. U.S. stocks, bond yields and the dollar all fell as concerns over frothy tech valuations and a murky U.S. labor picture hit investor appetite. In the near term, that pressure is driving volatility and recalibrating rate cut expectations. Over the longer term, the episode tests whether earnings growth can broaden after the global easing cycle peaks or whether tighter liquidity will raise risk aversion. Globally, Asian markets held gains while major European indexes retreated, highlighting divergent regional flows and the ongoing influence of U.S. policy and money market strains.

Overnight market moves and what they signal

Risk assets pull back as investors reassess AI hype and data gaps.

U.S. main indices fell between 0.8 percent and 1.9 percent on Thursday as renewed fears of an AI bubble hit technology names. The Philadelphia Semiconductor Index dropped 2.4 percent. Consumer discretionary shares were weak and one of the largest individual moves came from DoorDash NYSE:DASH, which slumped about 17.5 percent. Energy was one of only two positive sectors, rising roughly 0.9 percent.

Global equity performance was mixed. China’s Shanghai Composite rose about 1 percent, Japan’s Nikkei climbed 1.3 percent and Hong Kong advanced 2.1 percent. In contrast, France and Germany fell around 1.3 percent. That regional divergence shows investors rotating toward areas that look cheaper or less stretched.

U.S. Treasury yields moved lower, with short-end yields down as much as 8 basis points and the curve bull steepening. The probability of a December Fed rate cut rose back near 70 percent. That reaction reflects both the hit to risk appetite and the market’s sensitivity to conflicting signals on growth and policy.

Jobs fog and the immediate policy edge

Missing headline payrolls raises uncertainty on the true state of employment.

The scheduled October U.S. non-farm payrolls report will not arrive because of a record long government shutdown. That gap matters now because markets were already parsing mixed prints. ADP showed stronger private payroll gains for October, while Challenger layoffs nearly tripled and the Chicago Fed’s regional data indicated the unemployment rate nudged up to 4.4 percent. Cost cutting and AI continue to weigh on labor demand in pockets, leaving the national picture foggy.

With headline data absent, markets must lean on partial series and high-frequency indicators to judge near-term growth. That heightens sensitivity to speeches from Fed officials this week, including New York Fed President John Williams, Vice Chair Phillip Jefferson and Governor Stephen Miran. Investors will watch comments for clues about how much the Fed is willing to tolerate money market strain before changing its communications or operations.

Money market tightness and liquidity risks

Bank funding strains keep a lid on risk appetite even as cut odds rise.

Money market liquidity remains under the microscope. The combination of a prolonged government shutdown, a rising Treasury General Account balance that drains reserves, high front-end rates and a wider SOFR-IORB spread has left short-term funding conditions strained. One research house described the situation as “uncomfortably tight.” Meanwhile, ongoing quantitative tightening and seasonal balance-sheet pressures add to the risk of episodic funding stress.

The Fed is monitoring this area closely and stands ready to act if conditions deteriorate, but the situation increases the chance of intermittent shocks to risk assets. That dynamic helps explain why stocks fell even as Fed cut odds picked up. Markets are now pricing in easier policy later in the year while wrestling with the near-term operational stresses in the plumbing of the system.

Policy cycles, valuations and the path for earnings

Peak easing may be near, but history offers mixed guidance on the market response.

Data suggest the global rate-cutting cycle has probably peaked in pace. Bank of America notes there were more cuts in the last two years than during the 2007 to 2009 global financial crisis, measured by count rather than magnitude. That reflects how aggressive rate hikes were in 2022 and 2023. The question for investors is whether the end of super-easy policy will mean tighter financial conditions or a rotation into a broader earnings cycle.

Historically, peaks in easing cycles were followed by a broadening of the earnings recovery and solid equity gains. However, today’s frothy valuations, especially in pockets of technology and AI-focused stocks, make a repeat outcome uncertain. Markets could still see periods of strong earnings growth, but higher valuations raise the bar and make downside moves larger when sentiment turns. That is what traders priced on Thursday.

Sectors, geopolitics and events to watch

Tariffs, legal rulings and corporate reports will shape flows in the short term.

Trade policy remains relevant. The U.S. Supreme Court is weighing whether the 1977 International Emergency Economic Powers Act covers tariffs, a question that touches the future of the administration’s tariff program. U.S. consumers may bear a rising share of the tariff bill, which officials indicated could reach about two thirds of the total by next year if current patterns hold. That outcome would slowly feed into inflation and consumer spending dynamics.

Corporate and macro calendars add moving pieces for the next session. Look for trade data from Taiwan and Germany, Bank of England chief economist Huw Pill’s remarks, Mexico inflation, Canada unemployment and U.S. University of Michigan consumer sentiment and inflation expectations. Fed speakers will remain influential. On the earnings front, investors will parse results and guidance from KKR NYSE:KKR, Constellation Energy NYSE:CEG, Duke Energy NYSE:DUK, News Corp NASDAQ:NWSA and Expedia Group NASDAQ:EXPE. Market participants will pay particular attention to any commentary on demand trends, pricing power and capital allocation plans.

In short, the near-term path for markets will depend on how policymakers respond to liquidity stress and whether earnings can justify lofty prices. For now, investors face a test of patience as regional market strengths tussle with concentrated risks in technology and funding markets.