US tech stock correction likely, warn ECB economists

A sharp fall in US technology stocks could threaten financial stability in Europe, according to economists at the European Central Bank (ECB). In a blog post published on Monday, the central bank’s team warned that the current boom-bust pattern in the sector may become a “question of financial stability” for the euro area. The economists said that a correction—a sudden drop in prices after a long period of growth—is likely. They pointed to high valuations in US tech firms, which have been driven by excitement over artificial intelligence. The warning focuses on how a US market slump could spread. European banks and investment funds hold large amounts of US assets. If those assets lose value quickly, the effects could ripple across the euro zone’s financial system. The ECB team did not predict a specific date or size for a possible correction. But they stressed that the risk is growing. “The longer the boom continues, the larger the potential for a sharp adjustment,” they wrote. The blog post is part of the ECB’s regular financial stability review. It does not represent an official policy change, but it signals growing concern among central bank officials. Investors have poured record amounts into US tech shares over the past year. The sector has driven most of the gains in major stock indexes. However, some analysts say those prices are not supported by company earnings. The ECB economists urged regulators to monitor the exposure of European financial institutions to US markets more closely. “A sudden reversal in sentiment could test the resilience of the euro area’s financial system,” they added.