Global Markets Reel from Fed Nominee, AI Bubble Fears

Global markets experienced a significant downturn on Monday, February 2, 2026, as investors reacted to mounting anxieties over the future trajectory of US interest rates and concerns about a potential artificial intelligence (AI) stock bubble, according to www.share-talk.com. This widespread rout impacted Asian shares, precious metals, and oil markets, signaling a period of heightened uncertainty for global investors.

The market instability was further exacerbated by President Donald Trump's announcement of Kevin Warsh as his nominee to lead the Federal Reserve, a development that unsettled investors already wary of high valuations in AI-related companies, as reported by ig UK on February 2, 2026. Warsh's nomination was initially interpreted by financial markets as hawkish, leading to immediate reactions across asset classes.

US equity markets finished lower, with the S&P 500 attempting to form a high but showing bearish divergence, IG UK stated. Technology stocks also saw declines amid concerns over stretched valuations and heavy investment in AI, according to SWI swissinfo.ch on February 2, 2026.

Precious metals, which had recently seen strong rallies, experienced a violent reversal, www.share-talk.com noted. Gold prices plunged around 9% and silver plummeted 28% to 31.4% on Friday following the nomination, Global Times reported on February 1, 2026. This "brutal flash crash" also spilled over into crypto markets, IG UK confirmed.

Concerns about an AI stock bubble are intensifying, with analysts questioning the sustainability of current high valuations. Fidelity Investments noted on January 28, 2026, that there is a possibility AI investments could represent a bubble close to popping. The Guardian also highlighted on October 8, 2025, that the AI valuation bubble is "getting silly".

Investors are also grappling with anxiety over the future direction of US interest rates, with some worried about a "higher for longer" scenario, as Francis Tan, Asia chief strategist at Indosuez, told SWI swissinfo.ch. Rising rates typically increase borrowing costs and can lead to lower stock prices, Investopedia explains.

The confluence of these factors has created an uneasy trading environment, with market participants re-evaluating valuations and recalibrating expectations for monetary policy under potential new Fed leadership, SWI swissinfo.ch indicated. Policy uncertainty and elevated asset valuations warrant continued emphasis on portfolio diversification, Fidelity Investments advised on January 21, 2026.

• Federal Reserve Nominee's Impact: President Trump's nomination of Kevin Warsh to succeed Jerome Powell as Federal Reserve Chair triggered immediate market volatility. Warsh, a former Fed governor, has a reputation for being "hawkish" on monetary policy, though he has recently shown a shift towards a more dovish stance, according to ig UK. His nomination, announced on a Friday, led to Treasury rates climbing, the US dollar strengthening, and stock futures falling, Invesco US reported on January 30, 2026.

• AI Valuation Bubble Concerns: The AI market's soaring valuations and speculative investment have raised concerns about a potential bubble, drawing parallels to the dot-com era. gmo stated on January 28, 2026, that the US stock market has been in bubble territory for a prolonged period, with AI acting as a "multi-stage rocket" to a deflating market. Analysts have questioned the investment structure of the AI industry, citing profitability and cash flow issues for major AI companies and "circular financing" arrangements between firms like Nvidia and OpenAI, Wikipedia noted.

• US Interest Rate Anxiety: Investor anxiety stems from the potential for US interest rates to remain "higher for longer," impacting borrowing costs for businesses and consumers. When the Federal Reserve raises rates, it tends to slow business activity and can negatively affect the economy, leading to lower stock prices, U.S. Bank explained. The market's confusion over whether a Warsh-led Fed would align with President Trump's calls for lower rates contributes to volatility across asset classes, SWI swissinfo.ch highlighted.

• Precious Metals Reversal: Gold and silver experienced extreme volatility and sharp declines, with gold down 8.3% and silver plunging 25.5% in a single day, Seeking Alpha reported on February 1, 2026. This reversal is significant because precious metals typically serve as safe-haven investments during periods of economic and political uncertainty. The Economic Survey 2025-26 had previously forecasted that gold and silver prices would remain elevated due to global uncertainties, unless lasting peace was achieved.

• Broader Market Volatility and Outlook: The current market environment is characterized by significant volatility, with the S&P 500 showing signs of attempting to form a high, according to ig UK. Hussman Funds noted in January 2026 that elevated stock market valuations and intensifying political pressure on the Federal Reserve increase risks, including inflation volatility and recession risk. J.P. Morgan Global Research, while generally positive on global equities for 2026, forecasts a 35% probability of a US and global recession, with sticky inflation remaining a theme.

• Central Bank Independence Debate: The nomination of a new Fed chair under political pressure reignites the debate about central bank independence. As Jerome Powell stated in January 2026, central bank independence is crucial for economic stability, and its weakening can lead to increased inflation volatility and recession risk, Hussman Funds reported. The market is closely watching how Warsh's potential leadership might influence the Fed's policy decisions and its perceived independence.

• Global Contagion and Domino Effect: The market downturn in the US, particularly the slump in precious metals, is having a "domino effect" on other assets globally, SWI swissinfo.ch explained. Asian markets, including the MSCI's Asian tech gauge, saw significant declines, and even Bitcoin briefly slid below $75,000. This cascading series of lows across various assets and geographies underscores the interconnectedness of global financial markets.