Market Declines Accelerate as Fed Concerns Rattle Traders

The selloff in U.S. equities deepened on Friday, extending a choppy week as mounting fears of a more hawkish Federal Reserve pushed investors to scale back exposure to riskier assets. The risk-off tone wasn’t limited to America; UK markets also weakened as fresh questions emerged around Britain’s fiscal strategy heading into the next budget cycle.

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Technology shares once again appeared poised to lead the broader market decline. Futures on the Nasdaq 100 slipped 0.4% in early trading, signaling continued pressure after the index tumbled more than 2% the previous session.

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That sharp drop came as traders reassessed the likelihood of an interest-rate cut next month, raising new concerns over sky-high valuations across the tech sector. The nervous shift in sentiment was also visible in digital assets, with Bitcoin falling to a six-month low as investors shunned speculative trades.

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Across the Atlantic, UK gilts were hit by heavy selling after Chancellor of the Exchequer Rachel Reeves unexpectedly dropped plans to raise income tax rates in the upcoming budget. Her reversal prompted immediate concerns about how the government would address the resulting revenue shortfall and whether it would need to turn to alternative fiscal measures to restore balance.

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Markets later steadied somewhat after people familiar with the decision said the move was rooted in more optimistic economic projections rather than budgetary strain. Still, the 10-year gilt yield remained six basis points higher at 4.50%, while the pound retraced some of its earlier losses as traders continued to digest the potential policy implications.

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In the U.S., expectations for a December rate cut shifted meaningfully after several Federal Reserve officials pushed back against the idea of easing policy for a third straight meeting. Their comments underscored the central bank’s view that the economy remains surprisingly resilient despite months of tightening, while uncertainty surrounding inflation has not fully cleared following the government shutdown. Investors are now trying to gauge where the bulk of policymakers stand, especially as concerns about pockets of weakness in the labor market continue to linger.

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Just weeks ago, markets had almost fully priced in a quarter-point reduction. But with inflation data mixed and Fed communication turning more cautious, traders have trimmed those odds to below 50%. The day ahead could provide more clarity, as three Fed officials including voting member Jeffrey Schmid are scheduled to speak. Their remarks may help shape expectations for the final policy meeting of the year and shed light on how the central bank is interpreting the latest economic data.

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Meanwhile, global sentiment took another hit from China, where fresh numbers signaled that the world’s second-largest economy started the fourth quarter on a weaker footing. The data revealed a historic drop in investment and a slowdown in industrial output two critical pillars of China’s growth engine. The continued softness raised broader questions about the durability of the country’s recovery and its potential spillover effects on global trade and commodity markets.

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“The nervousness is palpable across markets, and it’s coming from several directions at once,” said Arnaud Girod, head of economics and cross-asset strategy at Kepler Cheuvreux in Paris. “Any pushback from the Fed on interest-rate cuts is unwelcome. If the central bank feels it doesn’t yet have sufficient data, it’s more likely to delay action rather than move prematurely.”

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Investors also remain wary of the broader macro backdrop. Recent data showing mixed labor-market signals, slowing manufacturing activity, and persistent geopolitical tensions have added layers of ambiguity to an already fragile environment.

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For many portfolio managers, the coming weeks will be crucial as they assess whether the recent pullback represents a buying opportunity or the beginning of a more prolonged correction.

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Market participants are also looking ahead to next week’s slate of economic releases including updated inflation readings and U.S. consumer-spending data which could either calm nerves or reinforce fears that the Fed will take a more conservative stance. With global growth uneven and central-bank policy diverging across major economies, investors are bracing for continued volatility heading into year-end.

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