European shares fall as Fed rate fears hit AI stocks

European shares slipped as investors reassessed two pillars of this year’s rally: easier money and the payoff from AI-heavy capital spending. The pan-European STOXX 600 fell 0.89% to 633.61 points by 0721 GMT, after futures tied to the index had already pointed to a weaker open, down 1.1% at 0637 GMT.

The move matters beyond one trading session because it links market pricing to corporate confidence. Traders are now expecting the Federal Reserve to deliver 50 basis points of rate increases by year-end, using CME Group’s FedWatch Tool, which tracks probabilities implied by 30-Day Fed Funds futures. Higher borrowing costs would bite hardest where companies have leaned on debt to fund expansion, especially in artificial intelligence, where the spending boom has outpaced proof that profits will arrive quickly enough to cover the bill.

That uncertainty is not confined to Europe. Christine Lagarde said on June 22 that the euro-zone inflation shock was still not large enough to push up longer-term price expectations or create dangerous second-round effects, even after the European Central Bank raised rates by 25 basis points on June 11 to 2.25% on the deposit facility rate. It was the ECB’s first rate increase since September 2023, and markets had been pricing in a near-100% chance of the move before the meeting. LSEG data also pointed to expectations for another 25 basis-point ECB increase later this year, keeping pressure on bond yields and equity valuations alike.

The selloff also underscored how quickly the AI trade can unravel when rates rise. Earlier reporting pointed to roughly $600 billion of AI-related capital spending planned by big tech in 2026, a scale of investment that looks more vulnerable when financing costs climb and investors start demanding faster returns. The warning was echoed in Asia, where South Korea’s Kospi fell about 8.29% on June 8 and triggered circuit breakers, with Samsung Electronics and SK Hynix among the hardest-hit names. Semiconductor-heavy markets have become the clearest stress point for the AI boom.

For U.S. investors, the message is less about one day of red screens in Europe than about what the market is saying underneath: this is a repricing of growth assumptions, but it is also a test of whether the AI rally has reached the point where borrowing costs and earnings discipline matter again. If rates keep climbing and spending keeps outrunning profits, the pressure will spread well beyond tech, into broad equity indices and the retirement portfolios tied to them.