Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

The tech-induced selloff across global stocks accelerated on Tuesday and soft U.S. labor market indicators also weighed on Wall Street, while fiscal worries in Japan helped drag Japanese stocks, bonds and the yen lower.  

More on that below. In my column today I look at what helped trigger this swoon - a plain, old-fashioned shift in the U.S. interest rate outlook. This suggests that although many economic norms have been thrown out the window this year, some fundamentals still matter for markets.

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* AI leverage, private credit concerns deepen

Concerns over the huge sums needed for Big Tech and AI capex, and worries about liquidity and transparency in private credit, are growing in tandem. The result? Deepening unease around leverage just as the Fed seems set to pause rate cuts.

Amazon is raising $15 billion in its first bond issue in three years, Boaz Weinstein's Saba Capital Management has sold credit derivatives to lenders seeking protection on names like Oracle and Microsoft, and alternative asset manager Blue Owl - involved with Meta in the financing of a huge Louisiana data center - has moved to limit withdrawals from one of its funds. 

* Technical breakdown?

For those who view technical analysis as an important part of their investment or trading tool kit, these are interesting times. Even those who dismiss it out of hand may have to respect its potential impact on markets right now.

The selloff gathering pace has pushed many asset classes and indices below key technical levels, signalling further downside ahead - the Nasdaq closed below its 50-day moving average on Monday for the first time since May, the Russell 2000 on Tuesday closed below its 100-DMA for the first time since June, and bitcoin on Friday closed below its 50-week moving average for the first time since March 2023.  

* A bad day for Japanese assets

Tuesday was a bleak day for Japanese markets. The Nikkei 225 stock index lost 3%, its biggest fall since April; the yen slid to a 9-month low against the dollar and record low against the euro; long-dated JGB yields spiked to their highest on record.

The equity move is less concerning - benchmark indices are only coming off record highs. But the fiscal fear-driven bond and currency selloff is more eye-opening. At some point, they will be cheap enough to lure domestic if not foreign investors. If that doesn't materialize soon, Tokyo might have to step in with official buying.  

Warnings about Wall Street's excessive optimism, concentration risk, and frothy valuations have fallen on deaf ears for most of this year, leaving market-watchers wondering what, if anything, will cool the tech and artificial intelligence frenzy. 

It turns out that it could end up being a plain old-fashioned shift in the interest rate outlook. 

The S&P 500 and Nasdaq, buoyed by strong earnings and AI capex investment, have notched dozens of record highs this year, a remarkable feat given the uncertainty and poor visibility that have characterized the economic and policy landscape in 2025.

But both indices peaked on October 29, the day the Federal Reserve cut interest rates for a second consecutive meeting. Crucially, however, Chair Jerome Powell said afterwards that a third cut in December was not the "forgone conclusion" markets had seemingly thought it would be. "Far from it," he emphasized.

In the three weeks since, the line of Fed officials expressing their reluctance to ease policy again next month has lengthened.

The resulting shift in market-based rate expectations has been dramatic. 

The probability of a December rate cut fell as low as 40% on Monday, according to rates futures markets, compared with over 90% before the Fed's October 28-29 policy meeting. The next quarter-point rate cut isn't fully priced in until March.

Many risk assets have responded in kind. 

While the benchmark S&P 500 may only be down 3% since October 29, a lot of tech and AI bellwethers have been hit harder, with the Philadelphia Semiconductor Index's losses approaching 10%. Bitcoin, a reasonable proxy for wider risk appetite and speculative investment activity, is down 20%.