London’s FTSE 100 experienced a sharp downturn on Friday, mirroring global market anxieties surrounding inflated tech valuations and shifting expectations for the UK’s upcoming autumn Budget. The index closed down approximately 1.4%, losing around 140 points, with nearly all stocks contributing to the decline.
Global Tech Sell-Off Intensifies
The sell-off extends a broader trend of investor caution regarding the sustainability of recent tech rallies. Major US indexes – the S&P 500, Dow Jones, and Nasdaq – closed significantly lower on Thursday, with the tech-heavy Nasdaq suffering a particularly steep drop of 2.3%. Leading tech firms, including Tesla, Nvidia, Alphabet, and Arm, bore the brunt of the losses.
The growing concern centers on whether current valuations of tech giants, particularly those heavily invested in artificial intelligence (AI), are justified. Billions of dollars are being poured into AI development, but the long-term economic impact remains uncertain, raising questions about a potential market bubble.
According to Dan Coatsworth, head of markets at AJ Bell, the market downturn is spreading “like a contagious disease.” Investors are increasingly wary of stretched equity valuations and the potential for overspending on AI, especially as the jobs market shows signs of fragility.
Richard Hunter, head of markets at Interactive Investor, described the US session as a “bruising” one, noting emerging signs of a shift in investor sentiment. He highlighted that the two main drivers of this year’s rally – AI enthusiasm and anticipated interest rate cuts – are facing growing skepticism.
UK Budget Speculation Adds to Market Volatility
In addition to global pressures, UK markets were rattled by reports suggesting that Rachel Reeves, the shadow chancellor, has abandoned plans for an income tax hike in the upcoming autumn Budget. This unexpected policy reversal triggered a sell-off in UK Government bonds on Friday.
The combination of global tech fears and domestic budget uncertainty has created a volatile environment for UK investors. While the tech bubble concerns are broad-based, the budget speculation adds a layer of local risk.
Coatsworth noted that UK investors have “their own issues to process,” including the potential for a sudden shift in fiscal policy. The unexpected budget U-turn has spooked the bond market, adding to the overall market instability.
Broader Implications
The market turbulence underscores the sensitivity of global equities to both macroeconomic trends and policy expectations. The tech sell-off reflects growing investor doubts about the sustainability of recent gains, while the UK budget speculation highlights the impact of policy uncertainty on financial markets.
The current environment suggests that investors are becoming more cautious, reassessing risk tolerance in light of shifting economic and political conditions. The market downturn serves as a reminder that even seemingly unstoppable rallies can be vulnerable to sudden corrections.
The combination of global tech anxieties and domestic budget uncertainty has created a volatile environment for UK investors, suggesting that caution is warranted as markets navigate the coming weeks
