Add to that the fading dovish hopes for a December rate cut from the Federal Reserve (Fed), signs of a weakening US economy, lingering inflation risks and the thickening fog as official US data remains elusive — and you’ve got a recipe for unease.

Yes, but the sour cocktail of all these arguments didn’t prevent major US indices from rallying to uncharted territories since April, and there is no certainty that yesterday’s selloff will be the beginning of a broader correction wiping 10–20% off valuations in the coming weeks. It’s a possibility — one that many investors and large-company CEOs expect — but it’s not a preset course.

Counterarguments exist: earnings are better than expected; the Fed might not cut by another 25bp but could end QT. The latter would bring extra liquidity to markets. Recent data also shows the Fed has been adding liquidity via reverse repo operations and the People’s Bank of China (PBoC) is back to purchasing bonds to support growth.

Meanwhile, AI deals keep coming in — Nvidia is reportedly expanding partnerships beyond the US, including a recent one with Deutsche Telekom — and the company hasn’t said its last word this earnings season.

So yes, the latest moves and the bearish reaction to strong Big Tech earnings call for caution. The VIX index is rising, another sign that market stress is ticking higher. The latest 13F filings also showed that “Big Short” investor Michael Burry is betting against AI champions — about 66% of his portfolio is reportedly in Palantir puts and another 13.5% in Nvidia puts. But hopefully, all this doesn’t mean the apocalypse is upon us! Over the past 15 years, the S&P500 rebounded higher after a 10-20% selloff.

Yesterday, the S&P 500 and Nasdaq fell yesterday after Palantir’s record and better-than-expected results failed to attract fresh buyers, triggering fears that valuations may have gone too far — with price-to-sales ratios for buzzy tech names getting stretched.

There’s no doubt some of the Magnificent 7 stocks don’t deserve their lofty valuations (I’m looking at you, Tesla). Palantir, for instance, has a P/E ratio near 500, which is insane. Thankfully, that’s not the case for the rest of Big Tech.

The others trade at relatively high, but not extreme, multiples — the average P/E for the Magnificent 7 is now above 30, versus around 20 for the S&P 493. Google’s P/E is 32, Microsoft’s 36, and Nvidia’s 60 — but that will likely moderate once it reports earnings. Jensen Huang already hinted that up to $500 billion in revenue could flow in from Blackwell and Rubin chip sales between this year and next.

A correction would be healthy given how fast the market has risen in the past three years – and since April, but there might not be a dot-com-style crash when companies are printing such strong growth and profits. Smaller, buzzy names could get hit hard, yes — but the tech behemoths have means to weather a selloff.

Now, coming back to earnings, AMD also faced an unpleasant negative reaction despite strong — and stronger-than-expected — results. Revenue rose 32% to $7.69 bn, beating estimates (~$7.41 bn). The company guided for Q3 sales around $9.9 bn. Nevertheless, the share price fell about 3.7% in after-hours trading. The good news is that Nasdaq futures are sold less severely this morning, suggesting downside pressure could ease. But it may take more than a few earnings beats to bring the bulls back.

In metals and currencies, gold interestingly isn’t picking up the risk-off trades; it’s acting like a risk-on asset, falling in tandem with equities. The yellow metal struggles to hold ground near the $4,000 per ounce mark — it probably rose too far, too fast, to attract risk-averse investors. Bitcoin is also failing to play safe haven, testing the $100K level to the downside.

The US dollar, on the other hand, is strengthening against most majors, acting as a safe haven after months of heavy selling. The EURUSD slipped below 1.15 yesterday, Cable is preparing to test the 1.30 psychological support ahead of Thursday’s Bank of England (BoE) meeting, while the AUDUSD fell back below 0.65 despite the Reserve Bank of Australia’s (RBA) cautious tone this week, as it refrained from cutting rates and flagged lingering inflation risks. None of this is surprising — the dollar had been heavily shorted this year, so the rebound looks healthy and justified.

Among G10 currencies, the Japanese yen stood out as Japan’s Finance Minister said he was not enchanted by the yen’s rapid depreciation — a comment that likely prompted speculative shorts to close positions to avoid getting caught in a reversal. Still, given the dollar’s strong momentum and the dovish shift in BoJ expectations, the USDJPY will likely continue to attract brave dip buyers.

Today, services PMI figures will be in focus, along with earnings from McDonald’s, Qualcomm, and Arm Holdings. Let’s see how they perform — and how investors react!