Markets Cool After Monday Rally as Earnings and Policy Signals Stir Volatility
Stocks retreated after Monday’s strong gains on renewed doubts about lofty valuations and central bank timing. Palantir’s earnings drop and mixed messages from Fed officials are weighing on sentiment now. In the short term markets face earnings headlines and U.S. local elections that could amplify swings. Over the longer term the debate about rate cuts and corporate returns on AI spending will shape risk appetite in the United States, Europe and Asia. Currency moves in Japan and Britain, and a spike in merger activity globally, add local angles for investors across developed and emerging markets.
Market snapshot and key drivers
Global bourses slid after a brief surge on Monday as traders reassessed recent optimism. Wall Street futures were down more than 1 percent ahead of the U.S. open. Risk assets downshifted after Palantir (NYSE:PLTR) tumbled about 6 percent on its earnings day despite a headline beat and a reasonable revenue outlook. The reaction underlined how narrow the path to satisfy expectations has become for high multiple names.
Investors are also parsing comments from senior Fed officials who sounded less certain about another rate cut this year. That shift in tone, together with ISM and other activity data showing U.S. manufacturing in contraction for an eighth month, pressured sentiment. Still, the ISM prices paid gauge eased, which offers some offset on inflation risks.
Earnings, AI spending and valuation jitters
Palantir’s sharp move exposed wider unease about the returns big tech and AI-focused firms can deliver from massive investments. Palantir is trading on a 12 month forward price to earnings ratio of 246 for example. That sits far above AI leader Nvidia (NASDAQ:NVDA), which trades around 33 times on the same forward basis. The contrast highlights how stretched some names have become and why even modest deceleration in growth can trigger outsized reactions.
Monday also featured blockbuster corporate news that had a two sided effect. Amazon (NASDAQ:AMZN) jumped about 4 percent after announcing a roughly $38 billion deal with OpenAI to host and scale AI workloads on Amazon Web Services. That kind of deal underlines continued corporate commitment to AI infrastructure and cloud services. Meanwhile Kimberly Clark (NYSE:KMB) slid near 15 percent after it moved to buy Kenvue (NYSE:KVUE) for more than $40 billion, and Kenvue shares popped about 12 percent. The moves boosted merger and acquisition activity, which has been surging this year.
Data on dealmaking show worldwide mergers and acquisitions totaled about $3.5 trillion over the first ten months of 2025. That is roughly 38 percent higher than the year earlier and marks the second biggest year to date tally on record. The M&A backdrop can prop valuations in some pockets even as earnings growth becomes harder to sustain for others.
Policy signals, currencies and fixed income
Central bank and fiscal developments are shaping the near term outlook across multiple markets. In Britain, a pre budget speech from finance minister Rachel Reeves sent the pound to six month lows against the dollar as markets priced in tighter fiscal policy that could influence Bank of England decision making. The BoE faces political optics around the November 26 budget and members of its monetary council appear divided on timing for cuts. That divergence could generate volatility in gilts and sterling as the budget approaches.
In Japan the yen jumped after finance minister Satsuki Katayama warned about excessive yen weakness and said the government was monitoring the situation with high urgency. That statement helped push the yen higher and showed how officials in major economies can still move markets with short sharp interventions or strong rhetoric.
Treasury yields pulled back after the equity sell off, while the dollar showed mixed moves across the globe. The VIX volatility gauge climbed back above long term averages around 20, reflecting the spike in uncertainty. Fed lending data for the third quarter showed business loan demand from large and mid sized firms strengthened by the most in about three years, a datapoint that complicates the case for aggressive policy easing if credit demand remains firm.
Sector watch and session events
Earnings due in the current session include a mix of technology, industrial and healthcare names that could renew market direction. Semiconductor and AI related firms such as AMD (NASDAQ:AMD) and Super Micro Computer (NASDAQ:SMCI) are set to report, and their updates will be watched for demand signals. Healthcare and big cap names such as Amgen (NASDAQ:AMGN) and Pfizer (NYSE:PFE) are also on the diary. Quarterly results from such a breadth of companies will provide fresh inputs on corporate margins, demand and inventory cycles.
Other corporate names slated to report include consumer, payments and industrial companies that can move regional markets. The earnings slate overlaps with scheduled speeches by central bankers and regulators, and with U.S. local elections that could change near term risk mood. Traders will also track Supreme Court hearings on the legality of certain U.S. import tariffs that could affect trade exposed sectors.
What this means for the coming session
Expect volatility to remain elevated while markets reconcile strong M&A and AI spending headlines with signs of slowing activity and hawkish policy hints. Short term the market is reactive to earnings beats and guidance updates that alter growth expectations. Over a longer horizon investors will focus on where inflation and wage readings settle and on how central banks calibrate easing in response to fiscal choices and economic data.
Regions will feel these forces differently. In the United States earnings and Fed commentary will likely be the main drivers. In the United Kingdom the budget process and the BoE debate can produce outsized moves in gilts and the pound. In Asia currency interventions and trade flows will remain relevant, with China linked commodity demand and LNG imports under watch after a year of weakness. Emerging markets could see spillovers from both risk off episodes and renewed M&A as global capital keeps searching for returns.
The near term session will be shaped by corporate news flow, policy commentary and economic datapoints all arriving close together. Traders and market participants will weigh earnings detail against macro signals to judge which themes will dominate beyond the next few trading days.
