The Federal Reserve is becoming more hawkish, causing investors to reassess their expectations for interest rate cuts and leading to a sharp decline in the market.
This week, global stock markets experienced their largest weekly drop since March, mainly due to the resilience shown by the US economic data, which has lowered investors' expectations for a rate cut by the Federal Reserve.
The S&amp;P 500 index fell by 2.1% this week, and the Nasdaq Composite index fell by 2.6% this week.
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The seven giants that lead the Nasdaq - Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla - also suffered heavy losses. These seven giants have been falling continuously over the past three weeks, with a total market value loss of over $900 billion, marking the largest decline in total market value this year.
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Previously, the Federal Reserve raised interest rates by 25 basis points at the July FOMC meeting. The market bet that the Federal Reserve would start cutting interest rates in May next year, with July being the last rate hike.
The minutes of the Federal Reserve meeting released this Wednesday showed that at the most recent Federal Reserve meeting, policymakers warned of the high upside risks to inflation, which may force them to further raise interest rates:
<blockquote>
As inflation remains well above the Committee's longer-run objective and the labor market stays tight, most participants continued to see upside risks to inflation as significant, which might require further policy tightening.
</blockquote>
With the Federal Reserve becoming more hawkish, market expectations for interest rate cuts next year have cooled down.
Data released by the US Department of Labor on Thursday showed a slight decrease in initial jobless claims for the week ending August 12, and the retail sales data for July, which was released earlier this week, also exceeded expectations.
Padhraic Garvey, Regional Head of Americas Research at ING, stated:
<blockquote>
Essentially, because the economy is not stagnating, the market has narrowed the scope for future interest rate cuts.
</blockquote>
The FTSE Global Index fell 2.6% this week, marking the worst performance since the global stock market crash caused by the US banking crisis in March.
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The Stoxx 600 Index in Europe recorded a weekly decline of 2.3%, the worst monthly performance since September last year.
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The French CAC 40 Index fell 2.2% this week, while the German DAX Index fell 1.5%.
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The Nikkei 225 Index fell 3.1% this week.
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The Federal Reserve turns hawkish as economic data shows resilience, dampening expectations of interest rate cuts next year.

Interest rate storm pressures global stock markets, just experienced the worst week since March.