European and Asian indices declined across the board, with South Korea's KOSPI dropping 3.73%, Japan's Nikkei 225 falling 1.30% and China's CSI 300 losing 0.54%. The Stoxx 600 was down 0.34% in early trading, while the FTSE 100 fell 0.54%. S&P 500 futures were flat ahead of the New York open after the index rose 0.41% a day earlier, but Nasdaq futures weakened.
Markets were spooked by multiple simultaneous shocks. The French government imposed a curfew on major cities after nights of rioting and looting in Paris. Video on social media showed distressed shopkeepers pleading with young men to stop stealing. Similar unrest spread to Milan. The turmoil pushed the yield on the French 10-year bond to 4.94%, a level not seen since 2002. "Latest dynamics show signs of global, not just French debt crisis," Commerzbank's Christoph Rieger said in a note.
In the Middle East, Saudi Arabia canceled its Future Investment Initiative conference, known as "Davos in the Desert," following Houthi attacks on Riyadh's airport. Alphabet president Ruth Porat, Goldman Sachs CEO David Solomon and BlackRock CEO Laurence Fink had been billed as attendees. The Houthis also struck two tankers in the Strait of Hormuz on Friday. Despite increased oil supply in recent days, Brent crude rose to $111 per barrel, up from $108 a day earlier.
Adding to the bearish tone, the market debut of AI cloud provider Elice, which raised $150 million, saw its stock tumble 30%, a reminder of lingering investor skepticism about artificial intelligence profits.
The start of Q3 earnings season in the US is also weighing on sentiment. With 46 companies in the S&P 500 having reported, representing 11% of market cap, 80% beat expectations, down from 88% in Q2, according to Bank of America's Savita Subramanian and Victoria Roloff. Wells Fargo's Ohsung Kwon noted that earnings per share came in 0.3% below analysts' expectations, calling it "one of the weakest starts to EPS season in history."
Analysts at Glenmede warned that the AI capital expenditure boom, which has juiced S&P 500 earnings, will begin to create headwinds as depreciation costs build. "Glenmede estimates this phenomenon is boosting profits for the S&P 500 by 9% in 2026, though it may start to become an earnings headwind as the depreciation costs build into 2028," said Jason Pride and Michael Reynolds. Deutsche Bank's Jim Reid noted that since October 2025, companies selling AI infrastructure have outperformed those buying it: SK hynix and Samsung are up over 100%, while Microsoft is down 2% and Meta down 6%. Bitcoin was trading at $82,769.