In Short:
– Stocks fell due to concerns over AI valuations; S&P 500 down 1.2%, Nasdaq down 1.9%.
– Palantir shares dropped 9% despite strong performance, raising questions about sustainability of high valuations.

Stocks fell on Tuesday as investor concerns regarding artificial intelligence valuations impacted major indices.

The S&P 500 declined by 1.2%, and the Nasdaq Composite dropped by 1.9%, while the Dow Jones Industrial Average lost 304 points, equating to a 0.6% decrease.Palantir shares dropped 9%, despite the company’s strong third-quarter performance and positive forecasts attributed to its AI sector growth. The stock has surged over 150% this year, yet trades at over 200 times its forward earnings, leading investors to question whether such valuations can be sustained.

Other tech stocks also faced declines, including Oracle and AMD, which saw drops of 4% and more than 3%, respectively.

Gains in AI stocks have inflated the S&P 500’s price-earnings ratio above 23, raising concerns about stock valuations. Ameriprise market strategist Anthony Saglimbene highlighted potential risks, stating that investors are questioning if future profit growth will support high capital expenditures.

Market Outlook

Comments from executives at Goldman Sachs and Morgan Stanley further added to market worries.

Both firms predicted potential market pullbacks, with drawdowns of 10% to 20% possible within the next two years. Saglimbene noted a narrow market breadth in recent months, suggesting limited alternatives if a downturn occurs in the tech sector.

In Short:
– RBA predicts persistent cost-of-living issues with low chances of interest rate cuts; economy growth expected at 2%.
– Unemployment rose to 4.5%, but is projected to remain steady; inflation is forecasted at 3.7% by next June.

RBA forecasts indicate ongoing cost-of-living struggles and a low likelihood of interest rate cuts. The Reserve Bank’s quarterly Statement on Monetary Policy (SMP) suggests Australia’s economy will grow at around 2% annually, primarily driven by housing investment.

Unemployment rose to 4.5% last month but is expected to remain steady just below this level for the next two years. Some economists challenge this optimism. Productivity is improving more quickly than anticipated but remains relatively low by historical standards.

Inflation, meanwhile, is projected to stay persistently high despite solid growth and stable unemployment. The bank highlighted that last week’s inflation figures were significantly higher than expected, with the annual consumer price rise predicted to reach 3.7% by next June. With wage growth forecasted at only 3%, workers’ purchasing power is expected to decline.

No Rate Cuts

The RBA’s lack of interest rate cut forecasts have led markets to lower their expectations. The cash rate is predicted to bottom out at 3.3% next year, a revision from earlier projections of 2.9%. Many economists believe further cuts are unlikely, with a median expectation for no cuts until late next year.

RBA governor Michele Bullock acknowledged that maintaining the current rate is possible, noting that the RBA may not need to reduce rates significantly as other central banks have.

Competitive banking conditions offer some relief to borrowers, resulting in reduced spreads on variable-rate mortgages. Nonetheless, there are concerns that these spreads could increase as banks aim for higher profitability or as market risk premiums adjust. Australian variable mortgage rates may have reached their lowest point for the foreseeable future.

In Short:
– Russian officials emphasise their alliance with China after Trump’s meeting with Xi Jinping.
– Prime Minister Mishustin’s visit to China aims to strengthen trade and cooperation between the two nations.

Russian officials reaffirmed their alliance with China following U.S. President Donald Trump’s meeting with Chinese President Xi Jinping.Prime Minister Mikhail Mishustin arrived in Hangzhou for two days of negotiations, signing various agreements to enhance cooperation in trade, investment, energy, transport, agriculture, and space, according to Russian state media.

Mishustin described his Chinese counterpart as a “dear friend,” stating that Russian-Chinese relations are at their peak despite Western sanctions. Li Qiang reciprocated by expressing Beijing’s readiness to strengthen ties, noting mutual support amid external risks and challenges.

Strategic Partnership

China remains Russia’s most important ally, having not condemned the 2022 invasion of Ukraine, and echoes Russia’s language, referring to the situation as a “crisis.”

Ahead of this visit, the Kremlin highlighted the significance of the talks, sending a robust delegation, including top officials from finance, agriculture, space, and nuclear energy.

Mishustin’s visit coincides with Trump’s recent discussions with Xi, where agreements were reportedly reached on several issues in a gesture seen as a trade truce amidst rising tariffs.

Trump’s engagement with China contrasts with his lack of progress in talks with Russia, which he attributed to frustrations over the Ukraine conflict. This context may indicate Russia’s unease regarding China’s positive interactions with the U.S.