BIS warns AI frenzy could trigger stock-market slump

Key Facts

In a rare warning from the 'central bank of central banks', the Bank for International Settlements said in its annual report that overvalued stock markets driven by an AI frenzy, along with investor complacency and circular financing, could lead to a stock-market slump and jeopardize the global economy. The report highlighted that these combined factors create a fragile environment that could quickly turn into a sharp correction, according to media reports.

The warnings come as recent economic data, such as the U.S. Services PMI coming in at 51.3 in late June per market data, show continued but moderate expansion. While recent speeches by central bank officials have not directly addressed overvalued valuations, the BIS warning carries significant weight given its role as an umbrella for central banks worldwide and a key monitor of financial stability risks.

Investors will be closely watching the fallout from this warning, which could dampen risk appetite, particularly in the highly valued tech sector. Traders will also monitor upcoming central bank commentary and inflation data in the coming days to assess whether the BIS's concerns materialize into a broader sell-off.