ECB researchers warned that after technology stocks experienced a round of “rapid gains,” the stock market may adjust, which could have serious consequences for the Eurozone. Economists, including Malin Andersson, Stefano Corradin, and Kalin Nikolov, posted a blog post on the ECB website on Monday saying that even if the current valuation is reasonable, market adjustments should be expected. They proposed two complementary explanations. First, as artificial intelligence is applied in a wider range of fields, risks originally concentrated on individual companies will spread to the entire economy, and investors will therefore demand higher risk premiums. Unless profit growth is sufficient to offset this effect, stock prices will fall secondarily. Overconfident and overly optimistic investors may push prices above the level that fundamentals can support until market sentiment is reversed and valuations are revised as a result. Economists warn that Eurozone investors may be affected through two channels. On the one hand, they directly own the “Big Seven” stocks, including Apple, Alphabet, and Microsoft; on the other hand, the Eurozone's own stock market sentiment may also be overly optimistic. They said, “The Eurozone tech industry is small and the valuation is not that high, which reduces the risk that the local market will collapse on its own. But that doesn't bring much comfort: households, insurance companies, and pension funds hold significant exposure through global index tracking products, and judging from historical experience, pressure on the US stock market will also affect the Eurozone stock market.”

ECB researchers warned that after technology stocks experienced a round of “rapid gains,” the stock market may adjust, which could have serious consequences for the Eurozone. Economists, including Malin Andersson, Stefano Corradin, and Kalin Nikolov, posted a blog post on the ECB website on Monday saying that even if the current valuation is reasonable, market adjustments should be expected. They proposed two complementary explanations. First, as artificial intelligence is applied in a wider range of fields, risks originally concentrated on individual companies will spread to the entire economy, and investors will therefore demand higher risk premiums. Unless profit growth is sufficient to offset this effect, stock prices will fall secondarily. Overconfident and overly optimistic investors may push prices above the level that fundamentals can support until market sentiment is reversed and valuations are revised as a result. Economists warn that Eurozone investors may be affected through two channels. On the one hand, they directly own the “Big Seven” stocks, including Apple, Alphabet, and Microsoft; on the other hand, the Eurozone's own stock market sentiment may also be overly optimistic. They said, “The Eurozone tech industry is small and the valuation is not that high, which reduces the risk that the local market will collapse on its own. But that doesn't bring much comfort: households, insurance companies, and pension funds hold significant exposure through global index tracking products, and judging from historical experience, pressure on the US stock market will also affect the Eurozone stock market.”