In the last few days, stock markets have seen a slight recovery from the growth trend that started at the end of March. The S&P 500 is down about 4.5% from its highs. It is not even a correction that would occur only in case of a 10% drop. The question quickly spread among investors as to whether the long-awaited “AI bubble” was about to burst, or whether it was just a normal blip in an otherwise strong trend. Václav Franče, chief economic analyst of the financial house Uniq, stated this in a comment on the development on the stock markets.
- Stock markets are experiencing a slight decline after strong growth.
- Technology stocks and AI companies are the main factors of development.
- The decline in the S&P 500 is not yet a correction.
- US job growth and inflation are pushing rates higher.
- Market expectations are high, the room for surprises is narrowing.
“Despite the current decline, it seems likely that this is a short-term weakening rather than the beginning of a structural bear market. The fundamentals – especially the growth of profits – remain relatively strong and investors do not yet see a clear signal for a deeper decline. The currently set momentum can push US stocks higher again,” the analyst assessed.
The recent decline in shares follows a period of exceptionally strong growth, driven mainly by AI-related technology stocks. “It was these companies – from chip manufacturers to technology firms – that were the main engine of growth, but also the source of growing nervousness,” said France. The latest decline, the expert noted, is due to a combination of several factors that together created pressure on stocks.
The American labor market sent a negative signal
US labor market data showed higher than expected employment growth. “The American economy created 172,000 new jobs in May, which is almost 100,000 more than analysts had predicted. This led to an increase in government bond yields. Paradoxically, this is a negative signal for stocks,” added Franče. A strong economy makes it more likely that the Fed will keep interest rates at higher levels or raise them again in response to inflation.
May inflation in the US reached 4.2%, mainly due to high energy prices, which is the highest in the last three years. According to the analyst, this development has revived the discussion about the “higher for longer” scenario, i.e. about longer-lasting higher interest rates and a higher discount rate when valuing shares.
“Tensions in the area of the Strait of Hormuz, through which approximately one-fifth of global oil supplies pass, continue to keep energy prices at elevated levels. Expectations of high oil prices are reflected in inflationary pressures and subsequently in fears of a stricter monetary policy. Although there are signs of diplomatic improvement, the situation remains fragile,” said France.
Investments in AI are gaining momentum
Large technology companies are significantly increasing investments in data centers and AI infrastructure. While these expenditures support long-term growth, they also raise questions about sustainability, especially if they are financed with debt or lead to dilution of shareholders’ stakes.
“Even strong results are not automatically enough anymore. A typical example is Broadcom – the company reported record growth in sales and profits, driven by the AI segment,” added Uniqa’s chief economic analyst. Nevertheless, its shares fell by double-digit percentages due to a relatively weak outlook. The market thereby sends a clear signal – expectations are extremely high and the space for positive surprises is narrowing.
