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London’s FTSE 100 fell as a surge in tech valuations triggered a sell-off in global stock markets and reports of an autumn budget U-turn spooked UK investors.
The index was down about 140 points, or about 1.4%, on Friday morning.
Prices of almost all stocks including banks were falling natwest, lloyds And barclays One of the biggest fallers.
This marks a sharp decline for the index, which had enjoyed a rally at the beginning of the week and looked to be approaching a record 10,000 mark.
European markets were also in the red, with Germany’s DAX index falling nearly 0.8% and France’s CAC 40 falling 0.9%.
Dan Coatsworth, head of markets at AJ Bell, said: “Wall Street gloom has spread like an infectious disease to European and Asian markets.
“The entire market has declined as investors are worried about cracks in the narrative that has driven the mother of all tech rallies over the past few years.
“Investors are concerned about rich equity valuations and how billions of dollars are being spent on AI at a time when the jobs market looks fragile.”
The US S&P 500 and Dow Jones indexes both closed 1.7% lower on Thursday, while the tech-focused Nasdaq lost 2.3%.
Stocks that hold weight on the Nasdaq include TeslaNvidia, Alphabet and Arm.
Concerns about the rising valuations of tech giants and big AI spending drives have increased in recent months, raising questions about the possibility of the bubble bursting.
Richard Hunter, head of markets at Interactive Investor, said it was a “tough session” in the US, with “emerging signs that the narrative for investors is changing”.
“The two key drivers of this year’s rally are renewed appetite for AI trading and anticipation of interest rate cuts.
“However, recently investors have been shuffling uncomfortably in their seats as AI spending has become very high, the success of which will not be evident for some time, and continued buying interest has resulted in inflated valuations.”
He said investors were also considering the possibility that the US central bank, the Federal Reserve, could opt to keep interest rates on hold at its next meeting amid a lack of economic data to guide monetary policy.
Meanwhile, UK markets were also shaken by speculation Rachel Reeves The plan to increase income tax in the autumn budget has been cancelled.
A potential policy U-turn prompted a selloff in UK government bonds on Friday.
“Investors in the UK have their own issues to process, let alone whether there is a potential AI bubble waiting to burst,” Mr Coatsworth said.
“Speculation that Chancellor Rachel Reeves has scrapped part of her budget plan just days before the big event has sent the bond market into a tizzy.”