US markets saw a decline, particularly among tech stocks, due to worries about rising AI spending. The S&P 500 dipped by 0.1% after a day of fluctuations, while the tech-heavy Nasdaq dropped 0.7%. European stocks had mixed results. The Euro Stoxx 50 fell by 0.7%, with Germany’s DAX suffering a substantial 2.1% decline amid challenges in the tech sector. In contrast, France’s CAC managed a slight uptick of 0.1%.

Asian Markets Overview

Asian markets displayed varied performances. Japan’s Nikkei 225 held steady, while South Korea’s Kospi rose by 1.0%. Hong Kong’s Hang Seng grew by 0.5%, and China’s Shanghai Composite increased by 0.2%, fueled by news of possible regulatory relief in the property market. India’s Sensex also saw a small increase of 0.3%. The steep fall in the Nasdaq reflects concerns over the high costs of AI development, highlighting an ongoing theme. It might be wise to consider buying put options on tech-heavy indexes like the QQQ to guard against or benefit from a potential downturn in the next few weeks. With rising market uncertainty, the VIX index surged above 22 for the first time this year, suggesting that call options on volatility could be a timely opportunity. These worries grow as we move deeper into earnings season. Major tech companies have already announced over $200 billion in AI capital spending plans for 2026, marking a 35% increase from 2025 levels. Investors are now questioning whether revenue growth can match these significant investments, so we will closely monitor guidance from future earnings calls.

Strategy Considerations

Reflecting on the AI-driven bull market of 2024 and early 2025, we saw an increase in valuations based on anticipated growth. Now, the focus has shifted to profitability and return on investment, which creates challenges for the industry’s biggest spenders. We suggest selling call options against existing long positions in major AI firms to help manage this risk. The decline is not limited to the US; Germany’s DAX dropped over 2% following cautious remarks from its largest software company regarding AI infrastructure costs. This weakness in European tech presents a targeted opportunity. We see potential in taking bearish positions on specific European tech companies heavily affected by these capital spending cycles. Conversely, Asian markets are influenced by different factors, particularly reports of relaxed property regulations in China. This regional difference makes a paired trading strategy appealing — consider shorting a range of US tech stocks while cautiously going long on the Hang Seng Tech Index. This approach allows us to take advantage of the diverse economic stories currently shaping global markets. Create your live VT Markets account and start trading now.

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