After trading near all-time record highs yesterday morning, the FTSE 100 sank into the close, and losses accelerated on Friday after a bruising overnight session on Wall Street.
The NASDAQ closed down 5.5% as investors dumped AI-related stocks in the wake of the US midterms. This translated into a FTSE 100 trading down by 1.5% in early trade on Friday.
“The main issue for markets is how the US midterm result could affect the pace of AI investment,” said Pruksa Iamthongthong, Head of APAC Equities, at Aberdeen Investments.
“Democrats’ gains have increased concerns around greater scrutiny of data-centre development at a time when investors were already questioning the financing and returns behind the scale of AI capital spending. That explains why the reaction has been concentrated in technology and why US Treasury yields have fallen as investors price in a potentially slower AI build-out and weaker growth.”
NASDAQ futures were 1.5% higher at the time of writing.
But that wasn’t enough to reassure European stocks, and around 85 of the FTSE 100’s constituents were weaker at the time of writing. While much of the selling in the US was focused on technology shares, the declines were broader in Europe, with most industry sectors down.
Selling was fairly indiscriminate on Friday, although the telecoms sector had clear losers, with Airtel Africa and BT sinking to the bottom of the leaderboard. Airtel Africa was down 4.6% at the time of writing.
WPP, RELX and Sage were also among the heaviest hit.
IAG was one of the only shares to rise on Friday after the airline posted respectable Q3 results.
“Shares in British Airways owner IAG gained some altitude after its results revealed resilient demand on its core transatlantic routes,” said Dan Coatsworth, head of markets at AJ Bell.
“IAG has had to contend with significant turbulence. Inevitably, the company is facing significant pressure on profit as fuel costs soar in the wake of the Iran war, air traffic control outages haven’t helped, and full-year capacity guidance has been trimmed.
“Some of the reduction in capacity is down to the suspension of flights to the Middle East but some of it reflects a strategic cut in flights offered in Europe to protect prices – a disciplined move which will likely be welcomed by investors.”
Attention will shift to this afternoon’s Non-Farm Payrolls, which could drive a sharp movement in either direction for stocks depending on the figures.