S&P 500's decline from record deepens as tech declines: Market close

(Bloomberg) — The stock market headed for its longest losing streak since January as a handful of big technology companies sold off despite a decline in bond yields.

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Stocks fell for a fourth straight day, with the S&P 500 extending its decline from its all-time high to more than 4%. Chipmakers took the brunt of sales after orders from ASML Holding NV collapsed. Nvidia Corp. led losses in megacaps. As VIX options expired, a tug-of-war between bulls and bears ensued – and Wall Street's favorite volatility indicator wavered.

After a 10% rally in stocks in the first quarter – the strongest start to a year since 2019 – investors were increasingly skeptical about how much further the market could grow in the near future, even taking into account the economy's continued strength.

“The combination of geopolitical uncertainty, rising interest rates, Fed hawkishness and inflation frustration has left bears temporarily in charge,” said Nationwide’s Mark Hackett.

The S&P 500 hovered near 5,030. The Nasdaq 100 fell about 1%. Treasury bonds increased gains on strong demand in a $13 billion sale of 20-year bonds. Just a day after Jerome Powell poured cold water on his rate cut bets, pullback buyers emerged and two-year bond yields fell further below 5%.

The U.S. economy has grown “slightly” since late February – and businesses reported greater difficulty in passing on higher costs, the Fed said in its Beige Book survey of regional business contacts.

Powell signaled on Tuesday that policymakers will wait longer than expected to cut interest rates after a string of surprise high inflation readings. Fed officials made nearly three cuts in their forecasts released last month – but investors are only betting on one or two this year, futures markets show.

“Fed Chairman Powell has been downright hawkish,” said Win Thin and Elias Haddad of Brown Brothers Harriman. “The Fed wants the market to do the tightening for them. Financial conditions remain too loose and therefore a combination of higher yields, wider spreads, a stronger dollar and lower equity prices will be needed to tighten conditions.”

While global equities face tactical headwinds, this is simply a period of consolidation and stocks are likely to continue rising this year, according to UBS strategists led by Andrew Garthwaite.

The story goes on

They noted positive developments including artificial intelligence boosting productivity and profits, lower justified equity risk premiums, likely falling labor costs and fewer worries about margin pressures.

The equity risk premium for U.S. stocks – a measure of the difference between the expected returns of stocks and bonds – is now deeply negative, something that hasn't been the case since the early 2000s.

While this is not necessarily a negative indicator for the stock market, it all depends on the economic cycle. The lower ERP can be seen as a promise of future growth in corporate profits, but also as a sign that a bubble is in the making.

Stock market fundamentals and technical trends still appear supportive, suggesting the recent decline may prove temporary, according to HSBC strategists led by Max Kettner, who are using the decline to reinforce their bullish stance.

“Sentiment and positioning are not a warning sign, although real money investors have recently begun to extend their constructive stance on stocks,” they wrote.

U.S. corporate profits are expected to be “healthier” through 2024 and investors are more confident that companies can meet expectations, according to Morgan Stanley strategists.

The market is waiting for earnings to bottom in the first quarter before recovering sequentially in the second quarter and eventually growing in the second half of the year, a team including Michelle Weaver and Michael Wilson wrote.

Company highlights:

• President Joe Biden is calling for higher tariffs on Chinese steel and aluminum, part of a series of steps to shore up America's steel sector and win over its workers in this year's election.

• With Microsoft Corp.'s $13 billion investment. in OpenAI Inc. aims to avoid a formal investigation by the European Union's merger control authorities, easing fears that the relationship could be torn apart.

• Jane Street Group LLC posted net trading revenue of $10.6 billion last year as the proprietary trading firm continues to solidify its presence as a dominant market maker.

• US Bancorp lowered the outlook for a key driver of its annual profit as lenders face pressure to pay more for deposits.

• Abbott Laboratories raised the low end of its full-year profit forecast as strong medical device sales led first-quarter earnings and revenue to beat expectations.

Important events this week:

• Taiwan Semiconductor results Thursday

• US conference. Leading Board Index, Existing Home Sales, Initial Jobless Claims, Thursday

• Fed Governor Michelle Bowman speaks Thursday

• New York Fed President John Williams speaks on Thursday

• Atlanta Fed President Raphael Bostic speaks Thursday

• BOE Deputy Governor Dave Ramsden and Governing Council member Joachim Nagel speak on Friday

• Chicago Fed President Austan Goolsbee speaks Friday

Some of the key moves in the markets:

Shares

• The S&P 500 fell 0.4% as of 2:56 p.m. New York time

• The Nasdaq 100 fell 0.9%

• The Dow Jones Industrial Average has barely changed

• The MSCI World Index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.4%

• The euro rose 0.5% to $1.0671

• The British pound rose 0.2% to $1.2454

• The Japanese yen rose 0.2% to 154.34 per dollar

Cryptocurrencies

• Bitcoin fell 2.5% to $61,458.26

• Ether fell 1.4% to $3,027.43

Tie up

• The 10-year Treasury yield fell nine basis points to 4.58%

• The 10-year German government bond yield fell two basis points to 2.47%

• The 10-year UK government bond yield fell four basis points to 4.26%

raw materials

• West Texas Intermediate crude fell 3.1% to $82.72 a barrel

• Spot gold fell 0.4% to $2,374.31 an ounce

This story was produced with support from Bloomberg Automation.

– With support from Jessica Menton, Michael Msika, Sagarika Jaisinghani and Farah Elbahrawy.

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