Stretched U.S. valuations and rate uncertainty curb global risk appetite

Global equity markets today are being driven primarily by growing concern that U.S. stocks—especially the large companies in the S&P 500—have become very expensive at a time when interest rate policy and the payoff from heavy AI spending remain uncertain. The Shiller CAPE valuation measure for the S&P 500 has climbed to around 39, a level seen only once before in more than a century, just prior to the dot‑com bubble peak. This is making investors more cautious globally, as U.S. equities anchor many international portfolios and index products. At the same time, the Federal Reserve’s decision in January to keep interest rates unchanged has removed a clear near‑term catalyst for further gains. Markets are now unsure when or how quickly rate cuts might come, which affects everything from borrowing costs for companies to the relative appeal of stocks versus bonds worldwide. This policy uncertainty is encouraging some investors to lock in profits after a strong multi‑year run, adding to volatility and limiting upside. Finally, recent commentary from major technology leaders such as Alphabet and Amazon about continued heavy investment in artificial intelligence is raising questions about whether AI‑related spending will translate into earnings growth fast enough to justify current prices. While strong results from firms like Meta and Taiwan Semiconductor show that parts of the tech and semiconductor complex remain healthy, the broader market is wrestling with whether AI enthusiasm has run ahead of fundamentals. Together, stretched valuations, unclear central bank timing on rate cuts, and doubts about the near‑term payoff from aggressive AI spending are keeping global risk appetite in check and leaving major indices relatively flat despite solid pockets of earnings strength.