ORLANDO, Florida, July 22 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

The rally in U.S. tech stocks lost steam on Tuesday while

bond yields and the dollar fell, as investors trimmed positions

ahead of the first 'Big Tech' earnings reports and digested U.S.

President Donald Trump's latest tirade against Fed Chair Jerome

Powell.

More on that below. In my column today I look at the

differences - and potentially worrying similarities - between

today's AI frenzy and the dotcom boom and bust of 25 years ago.

Is today's bubble bigger than it was back then?

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. Fed reform may move markets more than Powell

ouster:

Mike Dolan

2. IN THE MARKET-How the ghost of 'transitory'

inflation is

haunting the rate debate

3. Dollar's dive offsets tariff sting for some U.S.

bellwethers

4. Industrial pruning won't pull China out of

deflation as

quickly as last time

5. How Japan's election outcome muddles the BOJ's

policy

path

Today's Key Market Moves

* Nasdaq snaps a six-day winning streak, falling 0.4%. In

the S&P

500 tech falls 1%, real estate and health each rise nearly 2%.

* Russell 2000 small caps index climbs 0.8%, Dow up 0.4%.

* Hong Kong and Chinese stocks outperform globally, gaining

0.5%

and 0.8%, respectively. Europe falls, hit by German stocks'

worst day in two months.

* U.S. 10-year yield slips to two-week low of 4.328%, down

for a

third day.

* Dollar index also falls for a third day to a two-week low.

* Gold up 1% to a five-week high of $3,433/oz,

closing in

on April's record $3,500/oz.

Tech cools, Trump's Fed ire burns

If investors cooled their stock-buying fervor on Tuesday,

Trump showed no sign of relaxing the pressure he's heaping on

Powell, branding the Fed chair a "numbskull" for not cutting

interest rates.

Financial markets may be getting inured to the attacks by

now, but one wonders if Powell will be prepared to face another

10 months of them until his term as Fed Chair expires. With

Powell in blackout period ahead of next week's Fed decision,

investors are unlikely to hear from him until next Wednesday

when he holds his scheduled post-meeting press conference.

Powell has insisted he won't resign and that Trump does not

have the legal authority to fire him, while the president

doesn't appear to be in any mood to tone down his rhetoric

against Powell or the Fed as an institution. The standoff is

getting more tense.

So much so, former PIMCO CEO and co-CIO Mohamed El-Erian

posted on X that Powell should resign "to safeguard the Fed's

operational autonomy," a far from ideal scenario but preferable

to the growing and broadening threats to Fed independence which

will "undoubtedly increase should he remain in office."

Meanwhile, on trade, Treasury Secretary Scott Bessent said

he will meet his Chinese counterpart next week in Stockholm to

discuss extending an August 12 deadline for a deal to avert

sharply higher tariffs. Trump said he may take up President Xi

Jinping on his offer to visit "in the not-too-distant future".

Washington announced a trade deal with the Philippines which

will see imports from the South East Asian country slapped with

19% tariffs, while the U.S. will pay zero tariffs. Similar

tariffs on imports from Indonesia were also announced.

U.S.-Philippines and U.S.-Indonesia goods trade volumes last

year were around $23.5 billion and $38.3 billion, respectively.

The latest U.S. corporate earnings were a mixed bag, with

Coca-Cola reporting strong profits and demand, while General

Motors' net income slumped by a third as tariff costs took a

$1.1 billion bite from its bottom line.

Still, nearly 80% of the S&P 500 firms that have reported so

far have beaten analyst expectations, according to LSEG data.

Analysts' year-on-year aggregate earnings growth forecasts for

the index now stand at 7.0%, up from 5.8% as of July 1.

Attention on Wednesday rests squarely on Alphabet and Tesla,

the first of the megacap tech firms to report.

Is today's AI boom bigger than the dotcom bubble?

Wall Street's concentration in the red-hot tech sector is,

by some measures, greater than it has ever been, eclipsing

levels hit during the 1990s dotcom bubble. But does this mean

history is bound to repeat itself?

The growing concentration in U.S. equities instantly brings

to mind the internet and communications frenzy of the late

1990s. The tech-heavy Nasdaq peaked in March 2000 before

cratering 65% over the following 12 months. And it didn't

revisit its previous high for 14 years.

It seems unlikely that we'll see a repeat of this today,

right? Maybe.

The market's reaction function appears to be different from

what it was during the dotcom boom and bust. Just look at the

current rebound from its post-'Liberation Day' tariff slump in

early April - one of the fastest on record - or its rally during

the pandemic.

But despite all of these differences, there are also some

worrying parallels. Investors would do well to keep both in

mind.

TOP 10 CLUB

The most obvious similarity between these two periods is the

concentration of tech and related industries in U.S. equity

markets. The broad tech sector now accounts for 34% of the S&P

500's market cap, according to some data, exceeding the previous

record of 33% set in March 2000.

Of the top 10 companies by market capitalization today,

eight are tech or communications behemoths. They include the

so-called 'Magnificent 7' - Apple ( AAPL ), Amazon ( AMZN ),

Alphabet, Meta, Microsoft ( MSFT ), Nvidia ( NVDA )

and Tesla - as well as Berkshire Hathaway ( BRK/A )

and JPMorgan ( JPM ).

By contrast, only five of the 10 biggest companies in 1999

were tech firms. The other five were General Electric ( GE ),

Citi, Exxon, Walmart ( WMT ), and Home Depot ( HD ).

On top of that, the top 10 companies' footprint in the S&P

500 today is much larger than it was back then. The

combined market cap of the top 10 today is almost $22 trillion,

or 40% of the index's total, significantly higher than the

comparable 25% in 1999.

This all reflects the fact that technology plays a much

bigger role in the U.S. economy today than it did around the

turn of the millennium.

AI BUBBLE?

By some measures, the current tech boom, driven in part by

enthusiasm for artificial intelligence, is more extreme than the

IT bubble of the late 1990s.

As Torsten Slok, chief economist at Apollo Global

Management, points out, the 12-month forward earnings valuation

of today's top 10 stocks in the S&P 500 is higher than it was 25

years ago.

However, it's worth remembering that the dotcom bubble was

characterized by a frenzy of public offerings and a raft of

companies with shares valued at triple-digit multiples of future

earnings. That's not the case today.

While the S&P tech sector is trading at 29.5 times forward

earnings today, which is high by historical standards, this is

nowhere near the peak of almost 50 times recorded in 2000.

Similarly, the S&P 500 and Nasdaq are currently trading around

22 and 28.5 times forward earnings, compared with the dotcom

peaks of 24.5 and over 70 times, respectively.

$3 TRILLION INVESTMENT HURDLE

With all that being said, a meaningful, prolonged market

correction cannot be ruled out, especially if AI-driven growth

isn't delivered as quickly as investors expect.

AI, the new driver of technological development, will

require vast capital outlays, especially on data centers, which

may mean that earnings and share price growth in tech could slow

in the short run.

According to Morgan Stanley, the transformative potential of

generative AI will require roughly $2.9 trillion of global data

center spending through 2028, comprising $1.6 trillion on

hardware like chips and servers and $1.3 trillion on

infrastructure.

That means investment needs of over $900 billion in 2028,

they reckon. For context, combined capital expenditure by all

S&P 500 companies last year was around $950 billion.

Wall Street analysts are well aware of these figures, which

suggests that at least some percentage of these huge sums should

be factored into current share prices and expected earnings, but

what if the benefits of AI take longer to deliver? Or what if an

upstart (remember China's DeepSeek) dramatically shifts growth

expectations for a major component of the index, like

$4-trillion chipmaker Nvidia ( NVDA )?

Of course, technology is so fundamental to today's society

and economy that it's difficult to imagine its market footprint

shrinking too much, for too long, as this raises the inevitable

question of where investor capital would go. It's therefore

reasonable to question whether a tech crash today would take

well over a decade to recover from.

But, on the other hand, it's that type of thinking that has

gotten investors into trouble before.

What could move markets tomorrow?

* Bank of Japan Deputy Governor Shinichi Uchida speaks

* Taiwan industrial production (June)

* U.S. existing home sales (June)

* U.S. Treasury auctions $13 billion of 20-year bonds

* U.S. Q2 earnings, including Alphabet, Tesla, IBM, AT&T

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