Markets Retreat as AI Bubble Fears Resurface, Oil Prices Tumble
Global financial markets opened the week under pressure, with Asian equities and U.S. stock futures sliding in tandem with a sharp decline in oil prices. Investor sentiment turned cautious as concerns over potential overvaluation in the artificial intelligence sector sparked a significant sell-off in key Asian markets.
South Korea's Kospi index bore the brunt of the selling, plunging 4.6% to close at 4,982.54. The downturn was fueled by growing anxiety that the frenzy around AI-related investments may be forming a bubble. Market heavyweights Samsung Electronics fell 3.5%, while memory chip giant SK Hynix plummeted 5.6%. The Kospi's retreat marks a stark reversal after weeks of record-breaking rallies driven by major tech firms capitalizing on the AI boom, including high-profile partnerships with industry leaders like Nvidia.
Meanwhile, energy markets saw substantial moves. U.S. benchmark crude oil dropped $2.80 to $62.41 per barrel, and Brent crude fell $3 to $66.32. Analysts attributed the decline partly to comments from President Donald Trump, who told reporters aboard Air Force One that Iran was "seriously talking" to the U.S. about a deal to prevent it from obtaining nuclear weapons. This eased some geopolitical supply concerns that had previously supported prices.
The broader market unease was also tied to uncertainty surrounding monetary policy. Investors are closely watching President Trump's nomination of Kevin Warsh to lead the Federal Reserve, evaluating what his potential leadership could mean for future interest rate decisions. The S&P 500 futures fell 0.9%, while Dow Jones Industrial Average futures declined 0.5%.
Precious metals, after a historic rally, experienced a volatile session. Gold prices fell 1%, while silver gained over 2%, following Friday's dramatic plunge that halted a record run. Gold had roughly doubled over the past year, briefly topping $5,000 per ounce last week before momentum faded.
Regional market performances were mostly negative. Hong Kong's Hang Seng dropped 2%, the Shanghai Composite sank 1.1%, Australia's S&P/ASX 200 fell 1.1%, and Taiwan's Taiex lost 2.1%. Japan's Nikkei 225 was a rare bright spot, edging up 0.2%.
The backdrop to the volatility includes lingering inflation concerns. A Friday report showed U.S. wholesale inflation was hotter than economists expected last month, potentially pressuring the Fed to hold rates steady. There are broader fears in financial circles about the central bank's independence under political pressure, which has previously driven investors toward assets like gold and weakened the U.S. dollar.
On Wall Street Friday, the S&P 500 closed 0.4% lower. Losses were partially offset by gains in Tesla, which rose 3.3% after a post-earnings rebound, and Apple, which added 0.5% following a stronger-than-expected quarterly profit.
Market Reactions:
"This looks like a healthy correction after an unsustainable run in AI-themed stocks," said David Chen, a portfolio manager at Horizon Capital in Singapore. "Valuations had become detached from near-term fundamentals. The long-term AI story remains intact, but the market is rightly pricing in more execution risk."
"The Fed nomination is the elephant in the room," noted Eleanor Vance, chief economist at Sterling Macro Research. "Markets are trying to gauge whether a Warsh-led Fed would prioritize inflation fighting over growth stimulation, especially with these persistent price pressures. The uncertainty is causing a repricing of risk assets globally."
"It's pure panic and profit-taking," argued Marcus Thorne, an independent trader based in Hong Kong, offering a more pointed view. "The 'AI bubble' narrative is just an excuse. The real issue is that liquidity is being pulled because the Fed is in a box—stuck between political pressure to cut and economic data screaming not to. Retail investors are going to get burned again."
"The oil move is significant," added Riya Kapoor, a commodities analyst at Global Energy Insights. "A $2+ drop suggests traders see a real chance for de-escalation with Iran, which would add supply to the market. It's a reminder that geopolitical premiums can vanish very quickly."