Global stocks hover near records as investors rotate out of AI high-flyers

Global equity markets are trading close to record highs, but the mood has turned more cautious as investors increasingly rotate out of richly valued technology and AI stocks and into financials, industrials and other value names.

Wall Street: Dow at records, tech under pressure

In the United States, the Dow Jones Industrial Average closed above 48,000 for the first time this week, notching back-to-back record highs, even as the tech-heavy Nasdaq Composite slipped. The broader S&P 500 is hovering near an all-time peak, with year-to-date gains in the mid-teens.

The split performance reflects a market that’s still optimistic about growth – but more selective about where it’s willing to pay premium prices. Investors have been taking profits in mega-cap AI beneficiaries after a powerful rally, while shifting capital toward banks, energy and other sectors seen as better value or more defensive.

Lower U.S. bond yields, as traders anticipate further rate cuts from the Federal Reserve, are helping support equity valuations overall, even as questions grow about whether tech earnings can keep pace with expectations.

Europe: financials push indexes to all-time highs

European markets are also in buoyant territory. The pan-European STOXX 600 hit a record high this week, supported primarily by financial stocks, while London’s FTSE 100 has been trading at historic levels.

Stronger-than-expected results from European banks and utilities, plus hopes that a resolution to the U.S. government shutdown will remove a key global risk, have underpinned sentiment. At the same time, pockets of weakness remain: France’s Edenred plunged after cutting its profit outlook, highlighting how sensitive individual names remain to regulatory and earnings surprises.

Global picture: near highs, but jitters about an AI bubble

Broadly, global stocks – as tracked by indices such as MSCI World and the MSCI All-Country World Index – are close to or above recent peaks after solid gains in 2024 and a further positive year so far in 2025. Recent data show the MSCI World up roughly low-single digits year-to-date, after a strong run in prior years, while global ex-U.S. and emerging-market equities have also posted double-digit 12-month returns in many cases.

But beneath the headline numbers, volatility has picked up. Global markets sold off sharply last week on fears that an “AI bubble” could be forming, after bank executives warned that valuations in some high-flying names looked stretched following a run of record highs across the U.S., Europe and Asia.

Trading desks thrive on volatility

The choppier backdrop is proving lucrative for big banks. Research from Coalition Greenwich suggests banks’ market divisions are on track for roughly $259 billion in trading revenue in 2025 – their best year since the financial crisis – thanks to elevated volatility in equities, rates, FX and commodities, as well as booming demand for equity derivatives and zero-day options.

U.S. institutions are extending their lead over European rivals in global trading, even as electronic market-makers challenge traditional banks for share in highly liquid products.

What’s driving the trend?

Several themes are shaping the current market trend:

• Monetary policy tailwind: Fed rate cuts and a downward drift in long-term yields provide support for equity valuations, especially in rate-sensitive sectors.
• Rotation out of mega-cap AI: After a stellar run, investors are rebalancing away from a narrow group of tech giants toward financials, industrials and utilities.
• Geopolitics and shutdown risk: Headlines around the U.S. government shutdown and ongoing geopolitical tensions add bursts of risk-off trading, even as markets broadly price in eventual resolutions.
• Valuation worries: While some research houses say the U.S. market still trades near fair value overall, they flag that parts of the growth and AI complex look expensive, leaving them vulnerable to any earnings disappointment.

Outlook: cautiously bullish, but correction fears linger

Strategists broadly describe the tone as “cautiously bullish”: economic data are slowing but not collapsing, central banks are easing rather than tightening, and corporate earnings have held up reasonably well. That combination has kept money flowing into stocks – just not as heavily into the same handful of AI darlings that dominated earlier in the cycle.

At the same time, warnings from bank chiefs and regulators about potential overvaluation – especially in technology and AI – mean that talk of a deeper correction has not gone away. A negative surprise on inflation, growth, or AI-related earnings could quickly test just how solid the current highs really are.