The DAX began Friday morning in weakness. By 9:30 AM, the major index stood at approximately 25,925 points, a drop of 1.5 percent from the previous day’s close. Andreas Lipkow, chief market analyst at CMC Markets, noted that the index now faces the task of defending the psychologically important 26,000 point level after achieving a new record high.
Consolidation on global equity markets is gaining momentum, with the semiconductor and AI sectors particularly facing significant selling pressure. The weakness observed on Wall Street is continuing in Asian markets, where both the Japanese Nikkei and the South Korean Kospi are receding, notably experiencing substantial losses in heavyweights such as Samsung Electronics and SK Hynix.
Adding to the uncertainty, US midterm elections could be altering the political landscape supporting the AI boom. With changes in state political leadership and new majority compositions, data center projects-previously considered safe-may now be subject to renewed scrutiny. This increases uncertainty regarding future investment needs and the pace of planned capacity expansion. The technology industry, particularly in its most critical area of multi-billion dollar AI infrastructure investment, may now face significant headwinds. Consequently, the generous valuation premiums previously granted are increasingly being questioned and scaled back.
Meanwhile, the geopolitical situation in the Middle East has worsened again. Attacks on oil tankers have driven crude oil prices up, dampening hopes for rapid conflict de-escalation. The path toward a political solution is proving rockier than many investors had hoped. This resurgence in regional tension prompts renewed concerns over a potential inflationary surge. The combination of falling technology stock prices and rising energy costs presents a particularly difficult scenario for financial markets. As growth expectations within the AI sector come under pressure, rising energy costs risk slowing down the broader economic recovery.
The latest market developments illustrate how far investor expectations had strayed from underlying economic and political realities. Following the recent strong rally, risk premiums are now being re-evaluated and overzealous market fantasies are being corrected. The stock markets must regain stability. A key concern is whether this adjustment process will proceed in an orderly fashion or if the selling in the technology sector will spill over into other market segments.
However, there remains a chance for European stocks to partially decouple from the weakness seen in US technology markets. Strong quarterly reports from German companies have bolstered hopes of a continued economic recovery. According to Lipkow, positive impulses were delivered by Daimler Truck’s performance today. The fact that the DAX has a relatively lower weighting of highly valued AI companies may prove to be an advantage during this phase. While the expected year-end sprint is not ruled out, it is anticipated to be significantly bumpier than a few days ago.
On a different note, the European community currency was weaker in the morning, with the Euro trading at $1.1185 and the Dollar at 0.8941 Euros. The price of gold also softened, falling 0.5 percent to $4,070 per fine ounce, equating to 116.98 Euros per gram.
