MORE VOLATILITY DUE BEFORE THE MARKET TURNS
The AI-driven tech rally that has carried markets around the world to record highs has brought on a lot of AI bubble talk.
There is still some division about whether or not we are in fact, in a bubble, but, either way, that chatter means any time tech shares sell off, the question turns to is the bubble bursting. Thursday was the latest example.
But those sell-offs don't necessarily mean the end of the AI hype, Thomas Mathews, head of markets, Asia Pacific at Capital Economics, said in note.
"Indeed, volatility could pick up quite a bit more, perhaps resulting in further sharp (but short-lived) drawdowns even if the S&P 500 ultimately continues to rise on net," he said.
Mathews points out that during the dotcom bubble there were drawdowns every few months before markets peaked. And volatility also isn't particularly elevated in when compared to the past, he added.
"All that suggests to us that if volatility and big drawdowns, in the market or subsets of it, are signs of the last days of a bubble, it’s not bursting yet," Mathews said.
"In fact, if the past is any guide, there’s plenty of room for volatility to pick up – even on a single-name basis – which would probably come along with a few more big sell-offs (and subsequent recoveries) before the market finally turned down for good."