A sharp decline in U.S. technology stocks has underscored how heavily markets rely on artificial intelligence optimism, according to a Monday note from Capital Economics, which said the slump has largely overshadowed progress toward ending the U.S. government shutdown.
The firm noted that despite the recent turbulence, there is little evidence that the AI boom is losing momentum, framing the sell-off as a sentiment-driven correction rather than a sign of deeper weakness.
“We see little on the fundamentals, though, that points to an imminent bursting of the AI ‘bubble’,” wrote Jonas Goltermann, Deputy Chief Markets Economist at Capital Economics.
Goltermann said the downturn lacked a clear catalyst, though it disproportionately affected high-valuation tech names, even those reporting strong earnings. The retreat, he explained, reflects investor unease over the sustainability of AI-led growth and mounting costs tied to the data-center expansion race.
“Market sentiment is always a fickle thing, especially in times of exuberance,” he said, adding that the pullback demonstrates how sensitive tech stocks have become to AI-related developments.
Goltermann compared the decline to recent weakness in gold and cryptocurrencies, calling it part of a broader correction in speculative assets. Still, he emphasized that “the core of the AI thesis remains intact” and is likely to endure further volatility in riskier corners of the market.
On the political front, the economist downplayed the shutdown’s broader relevance, describing it as “a sideshow” for investors. He noted that government shutdowns rarely cause lasting economic harm, and this one, despite being the longest on record, appears to have had minimal impact on sentiment.
Treasury yields and the dollar have even firmed slightly since mid-September, suggesting investors have become “slightly more optimistic” about the economy, Goltermann observed.
“With a deal seemingly having been struck in the Senate, [the shutdown] now looks to be nearing its end,” he said. “If, as now seems likely, the shutdown ends soon, we wouldn’t expect it to have a big bearing on the stock market.”
Concluding his note, Goltermann wrote: “We think tech will remain the main game in town: the seemingly imminent end of the shutdown is mostly a sideshow for markets.”