Market Outlook, 16 October issue — U.S. stocks: New York stocks rise as interest rates fall, while technology stocks such as AI semiconductor stocks are sold; Japanese stocks: Much of the Nikkei average’s sharp decline was driven by steep falls in AI and semiconductor stocks, with a technical rebound expected

In U.S. markets, from 12 to 15 October, the NY Dow was seen falling after a temporary rally. Meanwhile, the Nasdaq Composite, which has a high weighting of technology stocks, posted a larger decline, and movements in semiconductor-related stocks drove the broader market. Against the backdrop of the upcoming earnings season, expectations for strong earnings and movements in AI-related stocks were mixed.

As inflationary pressure resurfaced following upside surprises in the Consumer Price Index (CPI) and Producer Price Index (PPI), views spread that expectations for additional Federal Reserve rate hikes would re-emerge. This unsettled long-term interest rates, as periods of falling rates coincided with volatility in the equity market.

In Japan, the Nikkei 225 plunged from 13 to 15 October. The sharp decline in AI and semiconductor stocks, together with moves that treated ASML's results as having exhausted the available catalysts, weighed on the index, which at one point fell nearly ¥2,000. Although the decline moderated at times during the afternoon session, the impact of ASML's results and the outlook for TSMC's results left uncertainty in the market.

By region, the Shanghai Composite recorded a sharp decline on 12 October, while expectations for government fiscal support measures and other factors provided downside support. The decline in semiconductor and AI-related stocks also spread to the Japanese market, and risk-averse trading broadened across Asian markets.

Overall, movements in U.S. interest rates and AI and semiconductor stocks heightened short-term market volatility, contributing to the Nikkei 225's plunge. As the market looks for opportunities for a technical rebound, attention is focused on individual stocks and the performance of the major indexes.