US stocks set for worst week since April on AI rout

US stocks were headed for their worst week since April as worries over lofty valuations deepened a pullback from the market’s most speculative corners, including technology shares and Bitcoin. Futures on the S&P 500 fell 0.4% after erasing gains, underscoring the market’s fragility. Nasdaq 100 contracts slipped 0.7%. Bitcoin headed toward $82,000, extending its slump from an all-time high to more than 30%.

With global stocks on track for their steepest drop in seven months, investors are debating how much further the pullback that’s erased $5 trillion from this year’s tech-fueled rally has to run. Traders remain unsettled by lofty valuations, doubts over whether artificial-intelligence spending will pay off and fading prospects for a US interest rate cut next month.

"This is a rational selloff after the rally in tech stocks this year,” said Rory McPherson, chief investment officer at Magnus Financial Discretionary Management. “It could go even further as the market’s not oversold yet. The Fed’s rate policy outlook at the next meeting will absolutely be key."

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On Thursday, the S&P 500 benchmark logged its biggest intraday reversal — at 3.6% — since the height of the tariff turmoil in April, according to data compiled by Bloomberg. The gauge has now fallen 5% from its most recent peak.

In a technical warning that sellers have seized control, charts show Thursday’s losses fully erased the previous session’s advance. The signal — called a bearish engulfing pattern — was unusually large and swift and echoing a similar setup in early March that preceded a 5% drop in the index.

This time, the signal landed with extra weight. The S&P 500 broke below both its 50- and 100-day moving averages, levels that many traders view as key lines of support. Momentum gauges have rolled over, and breadth continues to narrow, clear signs that the bears were tightening their grip.

"All asset classes have been fragile for a while,” said Neil Birrell, chief investment officer at Premier Miton Investors. “In equities, a buy-the-dip mentality has prevailed, but when valuations are high and there is a lot of leverage in the system, at some point, the momentum players and retail investors will step away. That looks to be the case this week.”

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Goldman Sachs Group Inc. partner John Flood said that since 1957, there have been eight instances, including Thursday’s, in which the S&P 500 opened more than 1% higher only to reverse and close in the red. Still, average performance after those episodes was positive, with a gain of at least 2.3% on the following day and week and a 4.7% advance in the next month.

In Asia, Japan’s Prime Minister Sanae Takaichi’s cabinet approved the largest round of extra spending since the pandemic. The plan includes ¥17.7 trillion ($112 billion) in general account spending.

That came after Japan issued its strongest warning yet over recent movements in the yen, with the nation’s finance minister specifically mentioning intervention as an option as she tried with only limited impact to stem falls in the currency. The yen gained the most in a week.

In commodities, oil was on track for a weekly loss of more than 2%, with Brent trading below $63 a barrel. Crude’s leg lower came as Ukrainian President Volodymyr Zelenskiy agreed to work on a peace plan, just as US sanctions on two Russian oil giants are scheduled to take effect on Friday.

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