Stocks mixed as investors weigh AI rally, Fed outlook, and US shutdown

Asian stock markets were mixed on Thursday as investors weighed the sustainability of the AI-driven global rally, the outlook for U.S. interest rates, and the ongoing U.S. government shutdown.

News that Israel and Hamas had agreed to the first phase of a Gaza ceasefire provided some relief from geopolitical tensions, pushing oil prices lower, while gold retreated after touching an all-time high above $4,000 per ounce the previous day.

Technology shares have powered global equity markets higher this year, buoyed by massive corporate investment in artificial intelligence. But concerns are growing that AI valuations may be overheating, with analysts warning of a potential bubble.

“AI is clearly a bubble,” said Neil Wilson of Saxo Markets. “The question is when—not if—it bursts. And timing that is incredibly hard.”

He pointed to Oracle’s recent disclosure that profit margins from its AI cloud services — which rely heavily on Nvidia chips — were “very slim.” Meanwhile, Tesla’s 4.5% drop following the unveiling of its lower-priced Model 3 and Model Y disappointed analysts and raised doubts about future earnings momentum, despite expectations for a strong third quarter.

While Oracle’s report dragged Wall Street on Tuesday, the S&P 500 and Nasdaq rebounded the next day to close at new record highs, helping sustain investor optimism.

Asian markets attempted to extend those gains. Tokyo’s Nikkei 225 rose more than 1%, supported by expectations of further stimulus measures after the election of Sanae Takaichi, a pro-business leader, to head Japan’s ruling party.

Shanghai climbed as trading resumed following a week-long holiday, while Sydney, Taipei, and Manila also posted gains. However, Hong Kong, Singapore, Wellington, and Jakarta edged lower amid profit-taking and caution over U.S. political uncertainty.

The prolonged U.S. government shutdown—now in its second week—continued to dampen sentiment. Lawmakers remained deadlocked, as Democrats blocked a Republican stopgap funding measure for the sixth time, insisting that any deal must include an extension of healthcare subsidies for 24 million Americans.

Minutes from the latest Federal Reserve meeting revealed divisions among policymakers over the pace of rate cuts. Some members expressed concern over rising inflation, while others favored faster easing in response to weakening job data.

“Officials worried about employment risks will likely push for additional and quicker rate cuts,” said Ryan Wang of HSBC. “Those focused on inflation may remain more cautious.”

Geopolitical tensions eased after the announcement of a Gaza ceasefire, part of a 20-point peace plan announced by Donald Trump that includes Hamas releasing hostages and Israel pulling back its troops to agreed positions.

Oil prices, which had risen on fears of a broader Middle East conflict, slipped on the news. Gold, which reached nearly $4,060 per ounce on Wednesday amid crisis-driven demand, edged lower.

In corporate developments, Hang Seng Bank shares soared over 26% in Hong Kong following reports that HSBC plans to buy out the remaining shares and take the bank private in a deal valuing it at $37 billion. However, HSBC’s own shares fell more than 6% on the news.

Overall, markets remain caught between optimism over AI-driven growth and concerns about stretched valuations, U.S. political gridlock, and global economic uncertainty, leaving investors wary of the next major catalyst.

Key figures at around 0230 GMT

Tokyo - Nikkei 225: UP 1.4 percent at 48,405.93 (break)
Hong Kong - Hang Seng Index: DOWN 0.1 percent at 26,809.57
Shanghai - Composite: UP 1.0 percent at 3,921.28
Euro/dollar: UP at $1.1646 from $1.1628 on Wednesday
Pound/dollar: UP at $1.3416 from $1.3401
Dollar/yen: DOWN at 152.49 yen from 152.64 yen
Euro/pound: UP at 86.81 pence from 86.78 pence
West Texas Intermediate: DOWN 0.9 percent at $61.99 per barrel
Brent North Sea Crude: DOWN 0.8 percent at $65.75 per barrel
New York - Dow: FLAT at 46,601.78
London - FTSE 100: UP 0.7 percent at 9,548.87 (close)