Global markets experienced a 'sell-off in stocks and a rally in bonds' on Wednesday. Chip stocks plummeted due to valuation concerns, wiping out a combined market value of $500 billion overnight. Institutions predict that the $73 trillion bond market may have further room for growth.
On Wednesday, risk aversion sentiment significantly intensified. Global equities faced sell-offs as investors, preparing for potential further losses, flocked to safe-haven assets, driving the bond market higher.
U.S. Treasuries rallied across the board, pushing the benchmark 10-year Treasury yield down by 3 basis points to 4.05%, reaching a one-week low. Concerns over elevated valuations in the tech sector had already hit global equity indices. Yields on Australian and New Zealand bonds of similar maturities also fell, with Japanese government bond yields edging lower.
As concerns over high tech stock valuations rattled global equity benchmarks, the outlook for government bonds as the world's safest investment has become a focal point for markets. Wall Street executives, including Ted Pick from Morgan Stanley and David Solomon from Goldman Sachs, have warned of potential further declines in equities, while strategists are assessing whether the $73 trillion bond market has room for additional gains.
DBS Bank stated that if the stock market continues to decline, the U.S. 10-year Treasury yield could fall from its current level of around 4.07% to 3.8%. TD Securities forecasted that this benchmark yield would drop to 3.50% by the end of 2026.
"Warnings from corporate CEOs about valuations and capital expenditures have drawn attention," said Prashant Newnaha, senior rates strategist at TD Securities. "Combined with the potential U.S. government shutdown, weak economic data, and insufficient market liquidity, these factors together are fueling prolonged risk-off sentiment — traders will seek the most liquid safe-haven assets, making the bond market highly sought after."
Mark Cranfield, real-time strategist at Bloomberg Markets, said, "Macro traders are taking advantage of the momentum to lock in profits to offset losses from the rapid retreat of AI-related themes in the stock market, and there may be more such actions in the future."
"The buying in the bond market is a mirrored reaction to the retreat of AI themes, reflecting safe-haven demand amid rising volatility in equities," said Charu Chanana, chief investment strategist at Saxo Markets Singapore. "In short, the current rally in the bond market is driven by portfolio adjustments rather than a macro turning point — at least for now."
The start of a crash or a buying opportunity?
A further sell-off in global chip stocks has been triggered by market concerns that some of the biggest winners in the AI boom are overvalued. The combined declines in the Philadelphia Semiconductor Index on Tuesday and the Bloomberg Asia Pacific Semiconductor Index on Wednesday wiped out approximately $500 billion in market value.
On Wednesday, memory chipmakers Samsung Electronics Co. and SK Hynix Inc. dragged down South Korea’s benchmark KOSPI index by as much as 6.2% before trimming losses. Japan's Advantest Corp. saw its shares drop by up to 10%, while Taiwan Semiconductor Manufacturing Company (TSMC), Asia's largest tech stock, fell more than 3%. These companies are suppliers to NVIDIA Corp.
Since the April lows, chipmakers have added trillions of dollars in market capitalization as investors bet on surging demand for AI computing power. The pullback indicates growing concerns about the industry’s profit potential and stretched valuations—especially amid expectations that interest rates may remain elevated for an extended period. The Philadelphia Semiconductor Index currently trades at a forward price-to-earnings ratio of nearly 28 times, compared to its five-year average of less than 22 times.
Hedge fund manager Michael Burry disclosed bearish positions in Palantir Technologies Inc. and NVIDIA, further fueling the sell-off.
Palantir’s disappointing earnings guidance became one of the catalysts for the market rout. Advanced Micro Devices (AMD) also posted lackluster results and guidance after the market close, amplifying losses during Wednesday’s Asia-Pacific trading session.
“I don’t think this is the time to bottom-fish—the rally we saw earlier had little to do with fundamentals, so it makes no sense to say there’s valuation appeal now,” said Chauwei Yak, CEO of GAO Capital, a Singapore-based multi-strategy hedge fund. “But if some large-cap tech names fall 15%, 20%, then maybe it’s worth considering.”
“Global markets are painted red, presenting a bleak risk outlook. We need to stay open-minded and acknowledge that the downturn could deepen. Simply put, there aren’t many reasons to buy right now,” said Chris Weston, Head of Research at Pepperstone Group.
Some market participants view the correction as a positive development, relieving excessive upward pressure and making share prices relatively cheaper. As Amazon, Meta Platforms, and other global hyperscale tech companies pour more money into artificial intelligence, chipmakers and other tech firms are expected to see further boosts in earnings and stock performance.
Currently, both institutional and retail traders must navigate daily volatility. On Tuesday, Goldman Sachs’ basket of popular retail stocks fell 3.6%, three times the decline of the S&P 500.
Vikas Pershad, Asian equity portfolio manager at M&G Investments, barely slept through the night in Singapore due to market turbulence.
"I have been monitoring the market until I went to bed. The U.S. stock market just closed at 4 a.m., and after a brief nap, I prepared to respond to the Asia-Pacific market," he said. "The previous rally in the stock market was both rapid and intense. If the decline continues over the next few days, investors should not be surprised." He added that it is currently a good time to look for buying opportunities.
