Asian stock markets followed Wall Street lower overnight on Monday. The Kospi Index in South Korea expanded its intraday losses to 6%, making it the worst-performing major index in the Asia-Pacific region.
Samsung Electronics fell nearly 6%, SK Hynix dropped more than 8%, and SK Square also declined by over 6%, with these three stocks collectively being the biggest drag on the index. The small-cap Kosdaq Index also lost more than 4%. The selling pressure was so severe that it triggered a market protection mechanism. The Korea Exchange activated the sidecar mechanism on Monday, temporarily halting programmatic sell orders in the KOSPI market. Meanwhile, both domestic and foreign funds were net sellers, while retail investors bucked the trend by buying on the dip.
Notably, SK Hynix shares have fallen below their US IPO price.
At the same time, the Nikkei 225 Index in Japan saw its intraday losses widen to nearly 4%, and Kioxia Holdings shares plummeted by 18%.
Key Trigger: Doubts Over Returns from AI Spending
Last week, Alphabet's earnings report sparked concerns over capital expenditure on AI, leading to consecutive declines in the Philadelphia Semiconductor Index for three days. By Monday's US market close, the index fell again, with SanDisk, Advanced Micro Devices, and NVIDIA all among the worst performers in the S&P 500 Index.
Tech giants are making massive bets on AI infrastructure, with investments totaling hundreds of billions of dollars, but investors are finding it increasingly difficult to see when and how these expenditures will translate into profits.
"These companies embody the core pressure on current market sentiment—excessive capital spending by AI firms, with investors fearing it will erode returns," wrote Kyle Rodda, a senior analyst at Capital.com, in a note to clients.
"This is a week full of potential surprises, both good and bad," said Chris Larkin from E*Trade from Morgan Stanley. "Geopolitics and oil prices could be the biggest wild cards, but even if the 'Magnificent Seven' tech stocks deliver strong earnings, the market may not be impressed, especially as questions about AI spending levels persist."
Busy Week Ahead: Earnings and Central Bank Decisions in Focus
The market is facing a week with multiple tests from various fronts.
The Federal Reserve, the Bank of Japan, and the Bank of England are all set to announce their interest rate decisions this week. Simultaneously, Microsoft, Meta Platforms, Apple, and Amazon will report their quarterly earnings. In total, more than 170 companies in the S&P 500 Index are reporting results this week. In Asia, SK Hynix and Samsung Electronics are also due to release their quarterly figures.
The core focus of all these earnings reports is the same: can the returns on AI investments be validated?
Citadel's Surprise Forecast: Fed Rate Hike
On the monetary policy front, a noteworthy prediction has emerged.
According to a Bloomberg report, Citadel Securities expects the Federal Reserve to raise interest rates this week—a move that would catch the market off guard. In a note, Frank Flight, the firm's head of macro strategy, wrote that a 25-basis-point rate hike on Wednesday would strengthen Chairman Kevin Warsh's credibility in fighting inflation while signaling that policymakers are no longer relying on fully pre-announcing every policy action.
Currently, traders are pricing in about a one-in-three chance of a rate hike by the Fed this week.
US-Iran Talks Pressure Oil Prices
On the geopolitical front, the situation has seen a temporary easing of tensions.
President Donald Trump said on Monday that the US and Iran are engaged in diplomatic negotiations to end their conflict but warned that if talks fail, both sides would resume fighting. "They want to negotiate, and the only reason is because we've been hitting them hard," he told reporters. "There's a very good chance it will work out. If not, we go back to doing what we were doing before."
Citing sources, Bloomberg reported that Iran and Oman are trying to reach an agreement to restart shipping through the Strait of Hormuz.
In response, oil prices continued their decline. US WTI crude fell 0.9% to $81.89 per barrel, following the global benchmark Brent crude's biggest single-day drop in more than three months on Monday.
Other Market Movements
In the bond market, the yield on the 10-year US Treasury note was little changed at 4.64%. The US Dollar Index was flat, with the euro trading at $1.1367 and the yen at 163.83 against the dollar.
Cryptocurrencies were under pressure, with Bitcoin falling 1.9% to $63,703 and Ethereum dropping 2.8% to $1,890.
Spot gold declined 0.38% to $4,060 per ounce.
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