Asian stock markets trended higher on Tuesday as a three-day slide in oil prices temporarily eased investor sentiment, though technology shares faced sharp selling pressure driven by escalating scrutiny over artificial intelligence spending. Meanwhile, the Federal Reserve opened its two-day policy meeting.
Global financial markets navigated a volatile session on Tuesday, caught between a retreat in energy prices that offered temporary relief to risk assets and a severe semiconductor sell-off that dragged down major technology gauges. While equity-index futures in Hong Kong and Australia advanced alongside a modest gain in Tokyo, South Korea’s tech-heavy market pointed lower as investors reassessed the underlying momentum of the artificial intelligence boom.
Semiconductor Selloff and Growing Scrutiny Over AI Financing
Technology shares remained under intense pressure as investors questioned whether massive corporate spending on artificial intelligence will generate financial returns sufficient to justify elevated valuations. In South Korea, the benchmark Kospi index recorded a sharp decline as major memory chip manufacturers SK Hynix and Samsung Electronics posted double-digit losses during the session.
The weakness quickly spilled over into global markets. Micron Technology and SanDisk Corp. emerged as some of the largest drags on the S&P 500, while the Philadelphia Semiconductor Index tumbled 4.5%. That steep drop put the gauge on track for its worst month since 2002, following what had been its strongest quarter on record.
Market sentiment turned increasingly cautious as analysts scrutinized how the expansion of AI infrastructure is funded. Reports indicating deeper financial ties between leading AI companies and their technology partners raised questions over whether industry growth relies more on interconnected funding arrangements than genuine end-user demand. Compounding those worries, the rapid progress of Chinese AI developers offering lower-cost alternatives renewed debate about the profitability of billions of dollars channeled into data centers and advanced chips.
First New York portfolio manager Vikram Rai noted that the divergence between the S&P 500 and the Nasdaq 100 reflects a direct rotation away from chipmakers. The Nasdaq 100 simply cannot advance if memory and semiconductor shares fail to participate, Rai added, creating a difficult backdrop ahead of major upcoming earnings reports from U.S. tech giants including Microsoft, Meta Platforms, Apple, and Amazon.
Crude Oil Retreats Amid US-Iran Diplomatic Optimism
Providing a counterweight to the technology sector’s woes, oil prices held the bulk of a multi-day decline, buoyed by growing optimism that the United States and Iran might forge a diplomatic solution to end the war in the Middle East. President Donald Trump met with Israeli Prime Minister Benjamin Netanyahu in Washington, further elevating hopes for renewed peace initiatives.
While the easing geopolitical tensions helped unwind much of the war premium previously priced into energy markets, commodity strategists urged caution. Traders continue to watch for concrete evidence that commercial shipping through the Strait of Hormuz will normalize.
Ryan McKay, senior commodity strategist at TD Securities, emphasized that market participants remain cautious of any potential deal that does not concretely settle the Hormuz topic, pointing out that historical disagreements over the management of the strait previously fueled Iranian aggression and the early failure of the prior MOU.
Federal Reserve Policy Meeting and Broad Market Implications
Lower oil prices also pushed Treasury yields and the dollar downward as the U.S. Federal Reserve initiated its two-day policy meeting on Tuesday. Yields on 10-year Treasuries fell four basis points to 4.61% amid expectations that central bank officials will keep interest rates unchanged.
Economists and market analysts remain divided on the tone policymakers will strike. Analysts at JPMorgan Chase & Co. calculated that the probability of an actual rate hike is lower than the roughly 30% currently priced by traders, assessing a 50% likelihood of a hawkish hold as the central bank remains vigilant against persistent inflation while acknowledging incoming disinflationary signals from lower energy costs.
RSM Chief Economist Joseph Brusuelas pointed out that financial markets are currently contending with a mild bout of risk aversion ahead of the central bank’s announcement and two weeks of high-stakes corporate earnings. Without growing anxieties regarding international AI competition and corporate financial health, investors might have shown greater willingness to deploy capital.
Amid the broader market turbulence, Apple solidified its standing at the top of the corporate hierarchy. The iPhone maker recently surpassed Nvidia to become the world’s most valuable listed company, crossing the $5 trillion market capitalisation milestone and demonstrating that consumer hardware and ecosystem dominance can still command extraordinary valuations even as semiconductor shares reel.
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