While the results of the U.S. midterm elections are expected to bring lower oil prices and easing inflation concerns, the decline in AI-related stocks has also affected the Tokyo market. As the Nikkei Stock Average fell sharply, attention has turned to undervalued, high-dividend stocks.
AI- and semiconductor-related stocks continued to decline, and the Nikkei Stock Average recorded a substantial fall from the 2 October close to the 6 November close. Buying emerged in the first half of the period, recovering the index to the ¥70,000 range, but the downtrend then intensified, and it fell to ¥56,745 on 6 November. In the U.S. market, the Dow posted only a modest gain while the Nasdaq fell sharply, with turmoil in the U.S. market spilling over into the Tokyo market.
Factors behind the decline in AI-related stocks included credit concerns surrounding CoreWeave and expanding free-cash-flow losses at major AI companies, heightening caution over semiconductor companies' earnings and AI investment. At the same time, domestic-demand retail and entertainment stocks supported the market at times, while Nexera Pharma's announcement of a new drug partnership became a catalyst for gains.
The view that undervalued value stocks will be the market's next drivers has become widespread, and non-AI stocks are expected to lead share-price gains. Although a short-term rebound is possible depending on interest-rate and policy trends in Japan and the U.S., many market participants believe that a full-scale inflow of funds will take time.
Points of focus include Nvidia's earnings, scheduled for 17 November, year-end supply-demand disruption, trends in data-center investment, and developments in artificial-intelligence development regulations. Attention is also focused on sector-specific moves in light of interest-rate trends after the midterm elections, the outlook for oil prices, and the impact of Democratic Party policies.