Global Liquidation: Stock Valuation Fears & Hawkish Fed Sink Sentiment

Today’s markets are digesting the aftermath of a severe risk-asset sell-off, triggered by collapsing confidence in the high-flying tech sector and a sharp recalibration of expectations for Federal Reserve policy. The combination of valuation concerns and a more hawkish Fed outlook drove broad liquidation across global markets.

US Stock Market Risk: AI Overvaluation Fears Return

Yesterday marked one of the worst sessions for U.S. equities since the March-April tariff-driven sell-off. The S&P 500 dropped 1.7%, pulling further away from its recent all-time high, while the Nasdaq plunged 2.4% as tech names led the decline.

Primary Driver — Valuation Jitters in AI: The sell-off was dominated by renewed anxiety over AI sector overvaluation.

Nvidia fell 3.6%, while other AI-linked names saw even steeper declines:

• Super Micro: –7.4%
• Palantir: –6.5%
• Broadcom: –4.3%

After months of extraordinary gains, investors used sector-specific negative headlines to lock in profits. At the same time, revenue disappointments from several major companies—including Tesla—intensified selling pressure.

Macro Shift: Hawkish Fed Turns

On another front, the end of the U.S. government shutdown (which officially concluded yesterday) removed the political risk premium, forcing the market to focus solely on the underlying economic outlook and the Fed’s stance.

• The Key Worry: Traders are increasingly concerned that the Federal Reserve may not deliver the expected 25 bps rate cut in December. Expectations for that cut have fallen sharply to just 51%, down from nearly 70% a week ago and 92% a month ago.
• Data Flood Looming: The end of the shutdown opens the door for the release of crucial, long-delayed economic data (NFP, CPI). This data barrage will determine whether the Fed must halt its rate-cutting campaign.

These uncertainty — particularly the possibility of a policy pause — is another major headwind for stocks and risk-asset.

US Indices: Poised for Correction Risk

The risk-off sentiment and rising uncertainty around the Fed’s easing path have pushed back recent optimism despite the end of the U.S. shutdown. This leaves U.S. equities vulnerable to a potential correction.

NAS100, Daily Chart | Ultima Market MT5

From a technical standpoint, although the Nasdaq remains within its broader uptrend channel, recent price action — where multiple rebounds failed to break higher — signals slowing buying momentum.

Key support sits near the 25,000 level. This zone has acted as an important support previously, and a break below it could trigger a deeper and sharper corrective pullback, especially in the current macro backdrop.

Liquidity Triggers Pressure in Cryptocurrency

The Risk-Off sentiment and the growing uncertainty over Fed easing policies hit the cryptocurrency market even harder than traditional equities. Bitcoin plummeted below the $100,000 psychological level to its lowest value since May, while Ethereum fell sharply down 8% to $3167.

• The Cause (Monetary Fear): Cryptocurrencies are high-beta, high-risk assets that thrive on cheap and abundant liquidity (low interest rates).
• The market’s realization that the Fed may not cut rates in December means global liquidity is tightening. This reduced liquidity and rising uncertainty make high-beta assets highly vulnerable.
• Institutional Outflows: The decline was amplified by sustained negative outflows from U.S. spot Bitcoin ETFs, signaling a decline in institutional appetite and leading to a classic deleveraging event that forced liquidation across the market.

BTCUSD, Daily Chart | Ultima Market MT5

The sharp drop in global markets has left Bitcoin struggling to find support. The breakdown of the 105,000–102,000 support zone, followed by a clear break below the 100,000 psychological level, suggests that Bitcoin may face sustained bearish pressure.

At this stage, a meaningful recovery is unlikely until institutional demand returns or the Federal Reserve provides a clearer signal of renewed policy easing.

Daily Takeaways: Sentiment Wavering

In general, risk assets — including equities and highly sensitive cryptocurrency markets — are facing rising correction risk amid deteriorating sentiment. The uncertainty surrounding the timing of delayed U.S. economic data releases, combined with the Fed’s current policy “blind spot” and the market’s reduced expectations for rate cuts, is weighing heavily on overall risk appetite.

Following yesterday’s broad-based sell-off, attention now turns to whether downside momentum will continue to build. This makes Friday’s session particularly pivotal, as it may set the tone for next week’s market direction — especially with investors awaiting official confirmation of the U.S. data release schedule.

Disclaimer

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