Weekly market update - US tech wobbles

Stay up to date with the latest market trends, economic shifts and key financial developments across the UK, US and Asia.

This week's headlines 

🤞 AI hype hit by sell-off – US tech stocks faced scrutiny over their valuations this week, after an MIT (Massachusetts Institute of Technology) study revealed that 95% of companies have yet to see returns from generative AI investments. 

📈 UK inflation heats up again – consumer price inflation hit 3.8% in July, the highest in the G7. Food prices continue to rise, up 4.9% compared to a year ago, with products such as beef, instant coffee, confectionary, and orange juice all adding to the squeeze. 

⬇️ US labour market weakens – ongoing jobless claims hit 1.97m, their highest level since November 2021. Even so, most Federal Reserve (Fed) officials highlighted inflation risks as outweighing concerns over the labour market at their meeting last month. 

👀 Fed independence in focus – all eyes will be on Fed Chair Jerome Powell’s speech today at Jackson Hole for signals of future rate moves. Investors are concerned that President Trump may undermine the Fed’s credibility, after he called for a major rate cut and put pressure on Fed Governor Cook to resign.

🕊️ Peace talks stalled – efforts to negotiate a peace settlement between Russia and Ukraine remain at standstill, with division between demands over land and military presence.

Global and domestic uncertainty continues to shape markets. The inflation outlook remains challenging, keeping interest rates elevated. This is an environment where some investments can still do well - while others struggle - which helps explain the political pressure on the Fed from President Trump. 

Uncertainty has a tendency to swing markets, as we’ve seen this week. Even when agreements are made, there’s always the worry and risk they won’t hold, whether they be agreements to resolve military conflict or trade conflict.

That’s why diversification matters more than ever. Holding all your eggs in one basket is riskier than usual in times like these, when the basket keeps getting shaken. Fortunately for investors there are a wide range of asset classes, regions, and sectors available, allowing them to spread their risks and reduce the impact of the next breaking headline on their portfolio.

Chart of the week - stretched US tech valuations

Source: Premier Miton, Bloomberg. Data from 31.01.1995 to 31.07.2025

This chart tracks the Price/Sales ratio over time for the tech sector of the S&P 500, and more recently the so-called Magnificent 7. Put simply, the Price/Sales ratio is a financial metric that evaluates a company's market value relative to its revenue. It’s calculated by dividing the company's stock price by its revenue per share.

US tech stocks have delivered fantastic performance for investors in recent years, which has driven their valuations up at a faster pace than the growth of their sales.

High ratios can signal confidence of strong revenue growth, but they may also signal overvaluation. Before this week’s selloff, Palantir’s Price/Sales ratio was the highest ever recorded for a megacap company, with investors paying approximately $137 for each dollar of sales over the prior year. Such elevated multiples suggest that investors are paying a premium for future growth expectations - which may not materialize as anticipated.

UK stocks soar

The FTSE 100 climbed to new hights, with broad gains across consumer stocks, healthcare, utilities and financials. Oil and gas company Ithaca Energy jumped 10% after upgrading their production forecast, and medical equipment maker Convatec rose 5% following the announcement of a $300m share buyback.

Nasdaq struggles

The US tech index has suffered five straight days of losses with concerns over the sustainability of AI-driven growth. The data analytics firm Palantir plunged almost 10%, and chipmaker Nvidia dropped 5% in the sell-off.

Nikkei slips

An erosion in confidence hit Japanese stocks this week, with initial optimism over the US trade deal fading. Mounting pressure on Prime Minister Ishiba to resign and speculation over rate hikes from the Bank of Japan also contributed to the negative mood.

Oil bounces back

Crude prices rallied higher with signs of increasing demand and caution over Ukraine peace talks. Jet fuel consumption hit its highest four-week average since 2019, reflecting robust summer travel.

Solid gains for Gold

The precious metal was in demand this week due to market caution ahead of Fed Chair Powell’s speech.

Source: FE FundInfo, goldprice.org, exchangerates.org.uk, investing.com and finance.yahoo.com. GBP returns as at close of business on Thursday 21st August 2025.

Stay tuned for next week’s market insights

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This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.