The Australian sharemarket closed 2.5% lower last week, as global risk-off sentiment continued and local policy weighted on risk assets. Tuesday saw a sharp sell-off as investors digested the latest RBA board meeting minutes, which signalled policy is only slightly restrictive, also highlighting they are less urgent to ease rates further, with risk of limited scope for future rates cuts, unless the labour market dramatically cools or growth weakens. It was a sea of red last week as ten from eleven industry sectors fell, with Consumer Staples the only one to finish flat. Technology provider Block (2.3%) provided strong guidance, which saw its share price rise, while Bluescope Steel (-3.5%) delivered first half results, which saw its underlying earnings before interest and tax at the bottom end of their guidance range.
US sharemarkets finished lower last week, despite a strong rally on Friday, as losses earlier in the week held markets back. While there was no key driver for the pessimistic week that was, instead investors were cautious as momentum lacked and profit taking was underway. Nvidia (-3.9%) reported stellar results on Wednesday night after close, which saw the sharemarket open 1.9% higher on Thursday, however, this was short lived, as the stock then closed the day 3.2% lower. The rest of the sharemarket followed suit. The Communication Services (3.0%) and Health Care (1.9%) sectors were the standouts, which saw Eli Lily and Company advance (3.4%). Whilst the Technology (-4.7%) sector was the primary laggard, Alphabet helped to soften the losses, surging 8.2%.
European sharemarkets fell sharply last week with the STOXX Europe 600 posting its worst week in months, as investors continued to rotate out of the growth and big tech names into more defensive plays. Adding to the risk-off mood, UK retail sales and business activity both contracted, however, inflation continued to moderate towards the Bank of England’s target. There was no green on the board in Europe's sector performance, as all eleven finished lower, with Automobiles & Parts (-4.8%), Retail (-4.6%) and Technology (-4.6%) the worst performers. However, stock specific outperformer was BNP Paribas, which lifted 3.0% last week, after the French bank announced they were increasing their core capital buffer from 12.5% to 13.0%, following recent investor unease and to align with its peers.
Market Update: Navigating Volatility Amid AI Noise, Central Bank Uncertainty, and a Key Nvidia Test
It has been an eventful few weeks in global markets. The US earnings season, which kicked off in mid-October, has been much stronger than recent headlines might imply. With 95% of S&P 500 companies having reported, 83% have beaten earnings expectations and 76% have delivered a revenue surprise. Third quarter earnings growth is tracking at 13.4% year-on-year, marking the fourth consecutive quarter of double-digit growth, and reinforcing the underlying strength in global corporate profitability.
Despite this firm backdrop, both the S&P 500 and ASX 200 have retreated, falling around 4% and 6% respectively since late October. The CBOE Market Volatility Index (VIX), commonly known as the fear index, has also spiked to its highest level since the Liberation Day tariff announcements by President Trump in April. Concerns about an AI bubble, particularly doubts about when the spending will translate into returns, and growing uncertainty around central bank policy, have contributed to the pullback.
A More Constructive Lens on AI Bubble Anxiety
Recent commentary from major financial outlets and investment strategists has highlighted the sheer scale of AI related investment. There has also been scrutiny around the circular nature of some arrangements between chipmakers, cloud providers, and AI developers. This has led some to suggest we may be entering bubble territory.
A more balanced view is warranted. While enthusiasm may have run ahead of itself in parts of the market, the long-term opportunity remains grounded in real and rapidly growing demand. Consumers and businesses are increasingly using AI tools for everyday tasks such as search, writing, coding, and design. Weekly and monthly active users across leading platforms have expanded sharply, and the amount of data processed by these systems has accelerated at an extraordinary rate.
Central Banks and the Data Blind Spot
The longest US government shutdown in history created an unusual challenge for policymakers and investors by halting the release of official economic data. This has complicated expectations around whether the Federal Reserve will cut rates at its next meeting, and some Fed officials have recently pushed back against the idea of near-term easing.
In Australia, the RBA has become more cautious following stronger than expected inflation and resilient employment data. Markets have scaled back expectations of imminent rate cuts both here and abroad, contributing to higher volatility.
Nvidia Takes Centre Stage
Against this backdrop, the market was firmly focused on Nvidia’s quarterly earnings. Nvidia is currently the world’s most valuable listed company and the dominant supplier of the chips powering the AI buildout. The result was exceptionally strong, with quarterly revenue rising to a record US$57 billion and guidance upgraded for the period ahead.
The outcome briefly settled market nerves, but volatility resumed the following day as investors continued to debate whether the enormous investment underway across the AI ecosystem will deliver the expected returns. This type of whipsawing is common late in the year before what is often a seasonally strong period for equities as markets rally into the new year in the traditional Santa rally.
Staying the Course
Market pullbacks are a normal part of long-term investing. Earnings momentum globally remains solid, recession risks appear relatively low, and the Federal Reserve is still expected to ease policy further in 2026. These factors suggest the broader trend for sharemarkets should remain constructive.
This is also a reminder of why your broader investment strategy needs to be well diversified and risk-aware, helping you navigate short-term noise without feeling pressured to time every twist and turn. However, if the recent volatility has raised questions or concerns for you, please reach out to your advisor.
The week ahead
Locally, it is a quiet week, with monthly inflation data the main data point. Economists are expecting a 0.2% monthly increase, largely driven by falls in electricity prices thanks to subsidy payments in NSW and Western Australia.
Overseas, there is a raft of economic data in the US, including, retail sales, producer price index, home prices and the US Federal Reserve’s beige book. All to be released before Thursday, ahead of the Thanksgiving Holiday on Friday, which will see US markets close.