The semiconductor shake-out continued in the U.S. yesterday, with the Nasdaq 100 falling 2% after its fifth decline in six sessions. The flagship technology index is down 7.3% since the record it set on Wednesday 3 June, a week ago. The chip sector has led the correction, falling 12.5% over the same period.

The financial world may be bristling with sensors, commentators, influencers, algorithms, party drugs, complex models and artificial intelligence, but no one can say for certain how trend reversals begin or how they spread.

In this case, the most likely explanation for the sell-off is the exuberance that had gripped the chip sector. Its economic momentum is undeniable, but its stock market performance had become overheated. That is clear from the moves in some stocks since the start of the year: Sandisk is up 592%, while Micron, Intel, Dell and Marvell have gained around 190% to 200%. Those gains were even larger only a few days ago.

Investors were already somewhat unnerved by these exceptional moves. They are at least as worried by the relentless rise in spending on artificial intelligence. Not because investment is bad in itself, of course, but because permanently open spending taps are beginning to raise questions. There is a difference between stepping up expenditure with a clearly established path to future profitability and stepping it up with a vague, poorly framed idea of future returns.

Oracle's results last night illustrated the growing doubts in financial markets. On the positive side, the group beat expectations and raised its guidance. On the negative side, it spent more than expected on building data centres, while its traditional software business declined faster than expected. The shares were down 10% in after-hours trading. In the more euphoric mood of recent weeks, they might even have risen, as the market could have rewarded the acceleration in AI investment. Last night, that did not work at all, because complacency has ebbed.

Another explanation offered by some observers is that investors are taking profits on their beloved chip winners in order to buy SpaceX. Unsurprisingly, the IPO order book is overflowing. The market is buying into Elon Musk's messianic rhetoric, after he has already managed to inflate the valuations of several of his other companies through sheer force of persuasion. No sensible investor will buy solely on the basis of a back-of-the-envelope valuation, but many will do so because they want exposure to the Musk ecosystem, because they are following the crowd, or simply for the thrill of betting on a huge short-term gain driven by demand. On Polymarket, the probability of the valuation reaching $2,000bn by the end of the first trading day stands at 63%. It is 40% for $2,200bn and 24% for $2,400bn. In other words, there are meaningful expectations of a 14% to 40% rise in the shares in tomorrow's opening session, based on the valuation currently doing the rounds, with the final price to be set this evening. One thing is certain: there will be buying pressure in the days after the IPO, since index providers have debased themselves by changing the rules and rolling out the red carpet for the company. A large share of passive managers, or managers required to track indices, will have little choice but to buy. "We do not know whether Musk will ever succeed in sending humans to Mars. But the wave of changes to index methodology means he will exert a gravitational pull on investment portfolios almost immediately," Toby Nangle, who writes for the Financial Times' Alphaville column, neatly concluded yesterday.

Away from US technology, its setbacks and its hopes, the European Central Bank is due to deliver its monetary policy verdict today. The market believes it will have no choice but to raise rates in response to accelerating inflation. The decision comes this afternoon, in a dress rehearsal for the Fed's decision next week. In the Middle East, the United States bombed targets in Iran for a second consecutive day after tensions in the Gulf flared up again. Tehran is again trying to choke off traffic through the Strait of Hormuz. Brent crude is heading back towards $95 a barrel.

In Asia-Pacific, local technology stocks are holding up despite the US rout. Bucking the trend, Japan and South Korea are making modest gains. India, Australia and Taiwan are trading around the flatline. Hong Kong and mainland China are losing ground. European leading indicators are slightly lower, despite US futures moving back into positive territory.

Today's economic highlights:

On today's agenda: the European Central Bank's interest rate decision and the ECB press conference for the Euro Area; In the United States, the weekly jobless claims, the Core PPI, and the PPI will be released. See the full calendar here.

  • GBP / USD: US$1.34
  • Gold: US$4,082.26
  • Crude Oil (BRENT): US$93.77
  • United States 10 years: 4.54%
  • BITCOIN: US$62,562.4

In corporate news:

  • EDF and Centrica eye a UK government deal on extending the Sizewell B nuclear plant.
  • Frasers announces a EUR1.98 billion offer for the remaining stake in Hugo Boss.
  • Sequoia Economic Infrastructure Income Fund reports FY26 revenue of GBP123.7M.
  • Frontier Developments eyes record profit and signals further success ahead.
  • ASML will cut fewer jobs than originally planned following union negotiations.
  • Commerzbank has expressed concerns about UniCredit’s offer and is calling for greater transparency regarding share transactions related to the takeover bid.
  • BP Plc is continuing wage negotiations with the United Steelworkers union at its U.S. refinery.
  • Petroleo Brasileiro acquires a 50% stake in an offshore block in the Campos Basin from Equinor.
  • Mercedes is considering a partnership with drone startup Tytan for armored vehicles.
  • Julius Baer receives approval for its master plan to expand its Zurich site.
  • The legal division of Wolters Kluwer is integrating Stämpfli’s content into its Libra AI workspace.
  • At Microsoft, the Xbox division is planning massive layoffs next month, according to Bloomberg.
  • Oracle beats expectations and raises its guidance, but the stock drops 10% in after-hours trading due to even higher-than-expected capital expenditures.
  • Applied Materials is expanding its semiconductor production capacity in Singapore.
  • Caterpillar raises its quarterly dividend by 8% to $1.63 per share, payable on August 19.
  • SLB signs a deal with Venezuela’s PDVSA to modernize the oil sector using AI.
  • Humana sells its minority stake in Gentiva.
  • Ford’s main aluminum supplier restarts its New York plant following fires.
  • Teradyne wins a $139.9 million contract from the Air Force.
  • Target shareholders reject the proposal for an independent chair.
  • SpaceX’s IPO is reportedly more than four times oversubscribed, according to Bloomberg.
  • OpenAI is considering drastic price cuts in the face of competition from Anthropic, according to the WSJ.
  • DI Co secures a 21 billion won contract with Samsung Electronics for chip inspection equipment.
  • SK Hynix is considering a U.S. listing in August.
  • MediaTek's revenue rose slightly in April.
  • Today's key earnings reports: Adobe, BT Group, Halma, LPP.

See more news from UK listed companies here

Analyst Recommendations:

  • Berkeley Group Holdings Plc: Morgan Stanley maintains its underweight recommendation and reduces the target price from GBX 2990 to GBX 2800.
  • Barratt Redrow Plc: Morgan Stanley maintains its equalwt recommendation and reduces the target price from GBX 300 to GBX 260.
  • Persimmon Plc: Morgan Stanley maintains its overweight recommendation and reduces the target price from GBX 1390 to GBX 1330.
  • Vistry Group Plc: Morgan Stanley maintains its equalwt recommendation and reduces the target price from GBX 380 to GBX 270.
  • Severn Trent Plc: Citi maintains its neutral recommendation and reduces the target price from GBP 33.29 to GBP 28.79.
  • Pennon Group Plc: Citi maintains its buy recommendation and reduces the target price from GBP 6.56 to GBP 5.52.
  • Wh Smith Plc: Barclays maintains its equalweight recommendation and reduces the target price from GBP 6.15 to GBP 4.55.
  • Vodafone Group Plc: Barclays downgrades to market weight from overweight and reduces the target price from GBP 1.20 to GBP 1.10.
  • Trustpilot Group Plc: Barclays initiates an overweight recommendation with a target price of GBP 3.50.
  • Wh Smith Plc: UBS maintains its neutral recommendation and reduces the target price from GBX 600 to GBX 480.
  • Raspberry Pi Holdings Plc: Deutsche Bank maintains its hold recommendation and raises the target price from GBX 550 to GBX 650.
  • Diageo Plc: Zacks maintains its neutral recommendation and reduces the target price from USD 90 to USD 85.
  • Aj Bell Plc: Citi maintains its neutral recommendation and raises the target price from GBP 5.20 to GBP 6.