Stocks pause as bubble warnings mount

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Morning Bid U.S.

A Reuters Open Interest newsletter

What matters in U.S. and global markets today

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets, Reuters Open Interest

World stocks and gold paused their latest steep rally on Thursday as a series of warnings about excessive stock valuations and overly loose policy settings reverberated through global markets.

International Monetary Fund boss Kristalina Georgieva warned about risk to the world economy from potentially large corrections in lofty stock markets, while she also noted that fiscal policies were too lax worldwide, adding "don't get too comfortable." The caution followed the Bank of England's red flag earlier on Wednesday about the risk of a sharp reversal if investor moods soured on doubts about AI or Fed independence.

And JPMorgan chief Jamie Dimon on Thursday added his voice to warnings of a risk of significant pullback in the U.S. stock market over the next year or two. "I am far more worried about that than others," he told the BBC.

Despite the trepidation, soundings on the AI frenzy ahead of this month's corporate earnings season remained upbeat and the world's largest contract chipmaker TSMC reported another forecast-beating, AI-driven jump in annual revenue of 30%.

China's markets also returned in buoyant form from the Golden Week break and played catch-up to the global stock gains in their absence. Chinese chipmakers surged on more pressure in Washington for broader bans on exports of chip equipment to China and rare earth indexes jumped as Beijing tightened export controls of the strategic minerals.

Europe held on to Wednesday's recovery in French markets as President Emmanuel Macron batted away speculation of another snap election and said he would appoint a new prime minister within 48 hours to end the latest political hiatus.

Back on Wall Street, there was some cooling of the week's main moves today after fresh closing highs for the main stock indexes on Wednesday. Gold stalled at new records after surging past $4,000 earlier in the week. With official data still thin on the ground amid the U.S. government shutdown, investors took their cue from Fed minutes that nodded to further easing even as inflation worries linger. Stock futures were flat and U.S. Treasury yields nudged up a bit, however, after a mixed 10-year note auction late Wednesday and ahead of the long-bond sale later today. The dollar held much of the week's gains, with the yen sliding through 153 for the first time since February as Japan's next likely new prime minister Sanae Takaichi pledged to reassert government sway over the Bank of Japan.

AI-led megacaps and chips were the clear leaders again on Wednesday as the Nasdaq outperformed and the S&P 500 set another record. That mix of stretched growth leadership, a data vacuum and heavy deficit financing has stoked renewed chatter about froth across assets, with some investors leaning on the coming earnings season and Fed cuts to validate elevated multiples. Breadth stayed constructive under the surface, but sector laggards in energy, staples and homebuilders hinted at pockets of strain as mortgage demand slid despite lower rates.
Oil prices were little changed as investors weighed a ceasefire deal in Gaza that could ease geopolitical tensions in the Middle East against stalled peace talks in Ukraine that could sustain sanctions on Russia and curb its exports. Brent crude futures nudged up 13 cents to $66.38 and U.S. was up 11 cents to $62.66.
The surge in gold prices above $4,000 per ounce is spilling over into other precious metals on fears the Trump administration's unorthodox economic policies will see a debasement of the U.S. currency while other currencies are undermined by lax fiscal policies around the globe. Silver, platinum and palladium are enjoying upsized gains for the year as investors fret about a whole host of geopolitical and economic uncertainties.
UK assets remain in the crosshairs of global rates volatility, and the debate around the BoE's balance-sheet strategy is intensifying again. The case for easing off active gilt sales in favor of passive runoff is back on the table as a way to nurse a fragile market, even as BoE speakers keep the focus on price stability and the transmission of tight policy. With gilts tightly linked to U.S. Treasury moves, any further swing in dollar rates will matter as much as Threadneedle Street's own guidance.

In today's column, I look at how estimates of a record $600 trillion global wealth pile can only hold if a genuine productivity boom materializes.

I'd love to hear from you, so please reach out to me at mike.dolan@thomsonreuters.com.

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

Today's Market Minute

Oil prices dipped on Thursday as geopolitical tensions eased on news that Israel and Hamas had agreed to the first phase of a ceasefire plan to end the two-year conflict.
French President Emmanuel Macron will appoint a new prime minister in the next 48 hours, his office said on Wednesday, adding that a majority of lawmakers were against holding a snap parliamentary election amid France's worst crisis in decades.
A pledge by Japan's next likely prime minister to reassert government sway over the central bank has fanned worries about political interference in monetary policy, however, a weak yen and politics could limit any such push.
The amount of U.S. Treasuries held at the New York Fed on behalf of global central banks has slumped to its lowest in over a decade, writes ROI markets columnist Jamie McGeever, casting renewed doubt on foreign appetite for U.S. sovereign debt and other dollar-denominated assets.
China's longstanding dominance of clean energy manufacturing is translating into a behemoth export business, with close to $1 trillion of related goods shipped globally since 2018. Read ROI global energy transition columnist Gavin Maguire's latest piece.

$600 trillion of wealth rests on productivity or inflation burst

Global wealth accumulation this century has far outstripped economic growth, and the performance of that $600 trillion of savings over the next decade rests heavily on how the gap is closed - a productivity boost or sustained inflation.

Financial markets have become increasingly agitated about whether investors chase the parabolic rise in artificial intelligence stocks and bet on AI adoption more broadly, or hedge fears of a prolonged inflation burst due to lax money and fiscal policies worldwide.

Right now they appear to be betting on both - with tech-heavy stock indexes hitting records in tandem with soaring gold. Global equities are up 17% in 2025 while gold has gained 50%.

Graphics are produced by Reuters.

Business consultants McKinsey put some shape on the bigger picture with its updated release this week on what it calls the "global balance sheet" of GDP, savings and debt.

The top-line metrics from this "state of the world" number crunch are eye-catching.

Global net worth in aggregate has nearly quadrupled since 2000 to $600 trillion at the end of last year and will have climbed further given the market moves of the past nine months.

But this is getting further and further from underlying economic performance - moving from 4.7 times world GDP 25 years ago to 5.4 times now. And the concentration of that wealth remains alarming, with just 1% of people owning a fifth of it.

By devaluing assets and debt in real terms, the post-pandemic inflation burst kept something of a lid on this outsize expansion - but we appear to have reached another juncture.

Read the full column

Today's key chart

Graphics are produced by Reuters.

U.S. President Donald Trump's net public approval ratings, the difference between approval and disapprovals, have been falling since the inuguration and the overall rating is a negative -18% - the latest Reuters/IPSOS opinion polls show. Despite the GDP and stock market recoveries since the Spring, the economy remains a drag on his popularity and Trump's performance in that category gets a negative -21% - roughly where it was at midyear.

Today's events to watch

Federal Reserve chair Jerome Powell, Fed board member Michelle Bowman, St. Louis Fed President Alberto Musalem, Minneapolis Fed chief Neel Kashkari and Fed Board Governor Michael Barr all speak; European Central Bank chief economist Philip Lane speaks
Euro group meeting in Luxembourg, with ECB President Christine Lagarde and ECB board member Piero Cipollone
U.S. Treasury sells $22 billion of 30-year bonds

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