Castle Securities indicates that risk assets could face turbulence as the Federal Reserve gradually approaches a new cycle of interest rate hikes, coupled with investors becoming more cautious in their assessment of the economic impact of artificial intelligence.

The firm's Head of Fixed Income Sales for Europe, the Middle East, and Africa, Nohshad Shah, stated that the current market environment resembles a combination of the dot-com bubble at the turn of the century and the oil-driven inflationary shocks of the 1970s.

Shah wrote that high interest rates played a significant role in both of those periods. In the early 2000s, the Federal Reserve's policy tightening, rising oil prices, and slowing economic growth collectively burst the internet stock bubble. In the 1970s, surging energy prices and accelerating inflation constrained the Fed's ability to support economic growth and triggered a prolonged bear market in stocks.

He stated, "The useful lesson from these periods is that markets tend to be most vulnerable when the long-term growth logic remains attractive, but the macro environment begins to turn against the market narrative."

Shah pointed out that today's stubbornly high inflation, persistently strong labor market, and elevated oil prices suggest the Federal Reserve could raise rates as soon as September. Simultaneously, investors are increasingly scrutinizing whether the adoption of artificial intelligence is widespread enough to support the currently very high profit expectations for some companies.

Shah warned that oil prices, which remain relatively high, are unlikely to decline rapidly. Inventories and strategic reserves have been heavily depleted during conflicts, and it will take time for shipping networks, insurance markets, and supply chains to return to normal.

Shah also cited research by his colleague Frank Flight, noting that investors are applying more rigorous evaluation to the business logic of artificial intelligence.

Reports have indicated that OpenAI is considering lowering the price of its AI services, a move that suggests customers are becoming more cost-sensitive and raises questions about whether the most advanced AI models can sustain the widespread adoption and high profitability anticipated by current market expectations.

Shah stated that if revenue growth falls short of expectations, and rising oil prices and interest rates further tighten financial conditions, then high-valuation assets related to artificial intelligence will face risks.

Shah wrote, "History has repeatedly shown that monetary policy tightening tends to sap the momentum of major bull markets, especially after investors have become highly concentrated in betting on a single growth theme."