Stock markets tumbled worldwide on Friday as Wall Street's sharp sell-off extended into Asia and Europe, driven by diminishing expectations that the Federal Reserve will cut interest rates in December and mounting concerns over inflated valuations in artificial intelligence stocks.
US stock futures pointed to further losses after Thursday's brutal session, which saw the S&P 500 plunge 1.7 percent to 6,737.49, its worst single-day drop in over a month.
The Dow Jones Industrial Average fell 1.7 percent from its record high to 47,457.22, while the Nasdaq Composite shed 2.3 percent to 22,870.36.
The widespread decline reflected a fundamental reassessment of monetary policy expectations that had supported equity valuations throughout the year, catching many investors who had positioned portfolios for continued Federal Reserve easing.
What Caused the Sharp Decline in Rate Cut Expectations
The probability of a December rate cut has collapsed to roughly 50 percent, down from 63 percent a day earlier and over 95 percent a month ago, according to the CME Group's FedWatch tool.
A series of hawkish comments from Federal Reserve officials this week dampened market sentiment that had anticipated continued monetary easing.
Minneapolis Fed President Neel Kashkari said he opposed the central bank's October rate cut and remains undecided about the December rate cut, telling Bloomberg that recent data show more of the same economic resilience.
Cleveland Fed President Beth Hammack emphasized that monetary policy must remain restrictive to bring inflation down. At the same time, St Louis Fed President Alberto Musalem warned there is limited room for further easing without becoming overly accommodative.
The Federal Reserve lowered its benchmark rate by 25 basis points to a range of 3.75 to 4 percent at its October meeting, the second cut this year.
However, Fed Chair Jerome Powell has stressed that a December cut is not a foregone conclusion, a language markets initially dismissed but now take seriously amid a chorus of hawkish commentary from regional Fed presidents.
Did you know?
The probability of a December Fed rate cut collapsed from over 95 percent just one month ago to roughly 50 percent today, representing one of the fastest reversals in market rate expectations in Federal Reserve history and catching many investors off guard.
How Did Technology and AI Stocks Lead the Decline
Nvidia led the decline in AI-related stocks, falling 3.6 percent on Thursday as investors questioned whether valuations for artificial intelligence companies have become overextended.
Other AI stocks also tumbled, with Super Micro Computer down 7.4 percent, Palantir Technologies losing 6.5 percent, and Broadcom dropping 4.3 percent.
The sharp sell-off in technology shares reflects growing concerns that the AI investment boom has pushed valuations beyond levels justified by near-term earnings potential.
The technology-heavy Nasdaq Composite bore the brunt of Thursday's selling pressure, declining 2.3 percent, compared with 1.7 percent for the broader S&P 500 and Dow Jones Industrial Average.
Investors who had poured capital into AI infrastructure and application companies based on expectations of transformative productivity gains are now questioning the timeline for returns on these massive investments.
Higher interest rates make future earnings less valuable in present value terms, putting particular pressure on growth stocks whose valuations depend heavily on expectations for profits years into the future.
Which Global Markets Suffered the Heaviest Losses
Asian markets bore the brunt of Friday's selling, with South Korea's Kospi leading regional declines, falling 3.2 percent to 4,038.61 amid heavy losses in the technology sector.
Samsung Electronics dropped 4.1 percent while SK Hynix, a major supplier of high-bandwidth memory chips for AI applications, shed 6.4 percent.
The sharp decline in Korean semiconductor stocks reflected both the global tech sell-off and specific concerns about softening demand for memory products.
Japan's Nikkei 225 declined 1.8 percent, reversing Thursday's gains, with SoftBank Group plunging 6.6 percent on concerns about its heavy exposure to technology investments.
Hong Kong's Hang Seng fell 1.8 percent to 26,572.46, while the Shanghai Composite slipped 1 percent to 3,990.49.
European markets extended losses on Friday, with the pan-European STOXX 600 falling 0.9 percent to 575.22 points as banks declined nearly 2 percent.
The FTSE 100 lost over 1 percent, while Germany's DAX dropped 0.7 percent and France's CAC 40 fell 0.7 percent.
ALSO READ | What’s Driving Record Inflows Into Bitwise Solana Staking ETF?
What Economic Data Reinforced Fed Hawkish Stance
The Federal Reserve's cautious stance on further rate cuts gains support from economic data showing continued resilience in the US economy despite elevated interest rates.
Labor markets remain tight with unemployment near historic lows, while consumer spending has stayed robust through the holiday shopping season.
Inflation has moderated from its peaks but remains above the Fed's 2 percent target, particularly in the services sector, where wage pressures continue to drive price increases.
Adding to market concerns, China released data Friday showing factory output grew just 4.9 percent year over year in October, the weakest pace since August 2024 and down from 6.5 percent in September.
Retail sales rose only 2.9 percent, also marking the slowest growth in over a year. The disappointing Chinese economic data raised questions about global growth momentum and export demand, potentially complicating the Fed's assessment of inflation risks.
Weak Chinese demand could ease commodity prices and imported inflation, but slower global growth might also reduce US export opportunities and corporate earnings.
Where Are Investors Seeking Safety Amid Market Turmoil
Gold prices climbed amid market turmoil, as investors sought refuge in the traditional safe-haven asset following a month of economic uncertainty.
The precious metal benefits from its role as a store of value during periods of financial stress and its negative correlation with risk assets during sell-offs.
Treasury bonds also attracted safe-haven flows, though yields remained elevated, reflecting expectations that the Federal Reserve will maintain restrictive monetary policy for longer than previously anticipated.
The shift toward defensive positioning represents a significant change in investor sentiment after months of aggressive risk-taking fueled by expectations of continued Fed easing and robust AI-driven earnings growth.
Market volatility measures have increased as investors reassess portfolio allocations in light of the changed rate outlook.
The sell-off could deepen if upcoming economic data strengthens the case for the Federal Reserve to pause its easing cycle. Such signals would likely increase uncertainty in equity markets, keeping investors cautious.
A prolonged period of higher-for-longer interest rates would pressure valuations by reducing the present value of future corporate earnings.
It would also make bonds more attractive relative to stocks, potentially drawing capital away from equities and increasing downside risk.
Comments (0)
Please sign in to leave a comment