Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

The rally in U.S. tech stocks lost steam on Tuesday while bond yields and the dollar fell, as investors trimmed positions ahead of the first 'Big Tech' earnings reports and digested U.S. President Donald Trump's latest tirade against Fed Chair Jerome Powell.

More on that below. In my column today I look at the differences - and potentially worrying similarities - between today's AI frenzy and the dotcom boom and bust of 25 years ago. Is today's bubble bigger than it was back then?

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If investors cooled their stock-buying fervor on Tuesday, President Trump showed no sign of relaxing the pressure he's heaping on Jerome Powell, branding the Fed chair a "numbskull" for not cutting interest rates. 

Financial markets may be getting inured to the attacks by now, but one wonders if Powell will be prepared to face another 10 months of them until his term as Fed Chair expires. With Powell in blackout period ahead of next week's Fed decision, investors are unlikely to hear from him until next Wednesday when he holds his scheduled post-meeting press conference.  

Powell has insisted he won't resign and that Trump does not have the legal authority to fire him, while the president doesn't appear to be in any mood to tone down his rhetoric against Powell or the Fed as an institution. The standoff is getting more tense.

So much so, former PIMCO CEO and co-CIO Mohamed El-Erian posted on X that Powell should resign "to safeguard the Fed's operational autonomy," a far from ideal scenario but preferable to the growing and broadening threats to Fed independence which will "undoubtedly increase should he remain in office." 

Meanwhile, on trade, U.S. Treasury Secretary Scott Bessent said he will meet his Chinese counterpart next week in Stockholm to discuss extending an August 12 deadline for a deal to avert sharply higher tariffs. Trump said he may take up President Xi Jinping on his offer to visit "in the not-too-distant future".

Washington announced a trade deal with The Philippines which will see imports from the South East Asian country slapped with 19% tariffs, while the US will pay zero tariffs. Similar tariffs on imports from Indonesia were also announced. US-Philippines and US-Indonesia goods trade volumes last year were around $23.5 billion and $38.3 billion, respectively.     

The latest U.S. coroprate earnings a mixed bag, with Coca-Cola reporting strong profits and demand, while General Motors' net income slumped by a third as tariff costs took a $1.1 billion bite from its bottom line. 

Still, nearly 80% of the S&P 500 firms who have reported so far have beaten analyst expectations, according to LSEG data. Analysts' year-on-year aggregate earnings growth forecasts for the index now stands at 7.0%up from 5.8% as of July 1. 

Attention on Wednesday rests squarely on Alphabet and Tesla, the first of the megacap tech firms to report. 

Wall Street's concentration in the red-hot tech sector is, by some measures, greater than it has ever been, eclipsing levels hit during the 1990s dotcom bubble. But does this mean history is bound to repeat itself?

The growing concentration in U.S. equities instantly brings to mind the internet and communications frenzy of the late 1990s. The tech-heavy Nasdaq peaked in March 2000 before cratering 65% over the following 12 months. And it didn't revisit its previous high for 14 years. 

It seems unlikely that we'll see a repeat of this today, right? Maybe. 

The market's reaction function appears to be different from what it was during the dotcom boom and bust. Just look at the current rebound from its post-'Liberation Day' tariff slump in early April – one of the fastest on record – or its rally during the pandemic. 

But despite all of these differences, there are also some worrying parallels. Investors would do well to keep both in mind.