Unlike the ‘everything rally’ last month, when all assets rose, this month financial markets are walking on ‘thin ice’. As concerns about an AI investment bubble come to the fore and expectations for US rate cuts fade, not only stocks·crypto assets but even the safe-haven asset gold have plunged together. The KOSPI index fell more than 3%, surrendering the 4000 threshold, and Bitcoin dropped below $90,000 for the first time in seven months, slipping into a slump. The short-term direction of financial markets is expected to hinge on Nvidia earnings to be announced on the 20th (Korean time).

That day, the KOSPI closed at 3953.62, down 135.63 points (3.32%) from the previous session. The KOSPI had risen to 4170.63 on the 13th, recovering most of the early-month pullback, but a sharp wobble sent the index back below 4000 after seven sessions.

This month marks the third time the KOSPI has plunged more than 3%, following the 10th and the 14th. On an intraday basis, it has tumbled more than 3% four times, including the 5th when a sell sidecar was triggered. This underscores how fragile sentiment is in the domestic stock market.

Advancing issues on the KOSPI accounted for only 8.9% of all listed names, reflecting broad weakness in the index. Among KOSPI 50 Index constituents, which group the top 50 companies by market capitalization, only Korea Electric Power finished higher, as large caps plunged across the board.

The crypto-asset ‘bellwether’ Bitcoin (based on Coinbase) was trading at $89,972 as of 3:30 p.m., down 5.26% from the previous day, falling below $90,000 (about 132,000,000 KRW) for the first time in seven months since late April. Domestic gold prices also fell 1.38% to close at 190,800 KRW per gram, marking a third straight decline.

Unlike the everything rally in October, when both stocks·gold rebounded, the across-the-board plunge has some investors saying ‘these days, only oil prices and the exchange rate are going up’.

What underpins the market unease are AI bubble concerns and uncertainty over the Fed’s rate cuts. Lee Kyung-Min, a researcher at Daishin Securities, said, “Hawkish remarks by key Fed officials are cooling expectations for rate cuts, and the AI bubble debate is persisting ahead of Nvidia’s earnings.”

Recently, Big Tech leading AI, such as Meta and Amazon, have issued large amounts of corporate bonds, heightening worries that AI investment is overheating. The previous day, news that the hedge fund of investor Peter Thiel, famous as a founder of PayPal and Palantir, had sold all its Nvidia holdings further fueled AI bubble talk. Expectations of liquidity easing from rate cuts had lifted asset prices, but as rate-cut prospects weaken, major asset prices are falling.

With the correction persisting, investor sentiment is shrinking. The CNN Fear·Greed Index, which reflects stock-market sentiment, stands at 15 points, the lowest since April. That means the level is ‘Extreme fear’.

Crypto assets are being hit particularly hard. Unlike equities, Bitcoin has been weak since last month and is swinging more sharply than other risk assets.

In the market, uncertainty is expected to rise depending on the pre-dawn Nvidia earnings on the 20th (Korean time) for the ‘AI bellwether’ and the direction of the Fed’s monetary policy. Han Ji-Young, a researcher at Kiwoom Securities, said, “With earnings season already over, for the time being, direction will be dictated by US-driven factors such as macro conditions including employment and Nvidia’s results,” adding, “In that process, markets may face pressure for expanded volatility.”