Monday 27 January saw a 3% fall in the tech-heavy US NASDAQ index after concerns over the possible negative impact a new Chinese large language model (LLM) could have on the pricing power and market valuations of megacap US tech groups. The loss was partly reversed a day later when the index rose by 1.6%.
As our Graph of the Week shows, on this occasion, the NASDAQ’s volatility was, when compared with other recent market-moving events, relatively limited.
Volatility had spiked in early August 2024 when the Bank of Japan surprised markets by abruptly hiking its key interest rates after a long period when rates were held at zero.
A smaller spike occurred on 18 December when US Federal Reserve policymakers announced they foresaw only two policy rate cuts in 2025, upsetting market expectations of more drastic action.
Now that equities have incorporated a likely higher discount rate in the wake of the Fed news, we expect company earnings to reassert themselves as the key determinant of the stock market’s future course.
If analysts’ estimates of earnings growth in the upcoming quarters are broadly correct, the trend in equity prices should be positive.
Also read Artificial intelligence – Still positive after the sell-off.
