Tech Stocks Snap Four-Day Losing Streak, Bonds Rise: Markets Wrap

(Bloomberg) — U.S. stocks' slump continued in the new year, while bonds rose, according to minutes from the Federal Reserve's latest meeting.

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The Nasdaq 100 fell 1.1%, extending its losing streak to a fourth day – its longest in more than two months – as investors continued to retreat from last year's successful technology sector. The S&P 500 slipped 0.8%, while the Russell 2000 small-cap index posted its worst decline since the banking crisis in March. Tesla Inc. and semiconductor stocks slumped while crypto-linked stocks faltered as Bitcoin erased most of its gains this year.

The dollar rose for a fourth day against most of its Group of 10 currency pairs, the currency's longest advance since November.

Fed policymakers said interest rates could remain restrictive for longer than expected last month, while indicating there could be rate cuts before the end of the year. Swap traders have trimmed their bets on rate cuts after pricing in a full quarter-point cut in the key interest rate by the March meeting.

Treasury yields ended the day near session lows, with the 10-year Treasury rate reversing after rising to just over 4% earlier in the day, its highest level since mid-December.

“By and large it was a hawkish update from the Fed,” said Ian Lyngen of BMO Capital Markets, although “the tone appears to have fallen on indifferent ears.”

“The FOMC minutes focused on better balancing risks to growth and inflation, but policy will remain hawkish for some time,” wrote Morgan Stanley’s Ellen Zentner. “We don’t believe the Fed plans to cut rates any time soon.”

Fed Chairman Jerome Powell sparked a market rally last month after he suggested policymakers had discussed cutting interest rates. His colleagues at the US Federal Reserve then tried in the following days to curb the market's enthusiasm for faster and deeper interest rate cuts.

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Richmond Fed President Thomas Barkin held back from predicting when the US central bank would make its first interest rate cut. “Conditions are constantly evolving,” he said in prepared remarks Wednesday. “This also applies to our approach. So buckle up. This is proper safety protocol, even if you expect a soft landing.”

Read more: Fed's Barkin says soft landing appears more likely, not inevitable

The Institute for Supply Management's production gauge reached 47.4 last month, data released Wednesday showed. The index has been below the 50 mark since the end of 2022 – indicating a decline. Separate data showed the number of job vacancies fell slightly in November from the previous month's revised figure.

“Overall, the labor market remains strong, but demand is cooling and coming into better balance with supply,” wrote Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “This data will be welcome news for policymakers and will support the Fed’s view that the next rate cut is likely to occur in the second quarter.”

Friday's jobs report could cement the slowdown story, according to ING's James Knightley. The composition of job growth is “almost as important as the number of employees themselves in determining the prospect of rate cuts in 2024,” he said.

Elsewhere, a plunge in Bitcoin on Wednesday saw the cryptocurrency wipe out almost all of the gains it had made so far this year. Stocks related to the sector fell, with MicroStrategy Inc. down about 8% and Coinbase Global Inc. down about 3%.

“The year is certainly off to a difficult start, which could lead to further profit-taking after last year's outsized gains, but the fundamentals have not changed, nor have earnings estimates,” said Louis Navellier of Navellier & Associates. “There are opportunities in good stocks whose attractive values ​​are being dragged down for no good reason.”

In corporate news, Walt Disney Co. Chairman Bob Iger drummed up investor support to avoid pressure from billionaire activist Nelson Peltz. Barrick Gold Corp. is sounding out some of First Quantum Minerals Ltd.'s major investors to gauge their support for a possible takeover.

Cigna Group slumped after the Wall Street Journal reported it was close to a deal to sell its Medicare business for $3 billion to $4 billion.

Important events this week:

• China Caixin Services PMI, Thursday

• Eurozone S&P Global Eurozone Services PMI, Thursday

• US initial jobless claims, ADP employment, Thursday

• Eurozone CPI, PPI, Friday

• US Non-Farm Payrolls/Unemployment, Factory Orders, ISM Services Index, Friday

• Richmond Fed President Tom Barkin – a FOMC voter in 2024 – speaks on Friday

Some of the key moves in the markets:

Shares

• The S&P 500 fell 0.8% as of 4:01 p.m. New York time

• The Nasdaq 100 fell 1.1%

• The Dow Jones Industrial Average fell 0.8%

• The MSCI World Index fell 0.9%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.2% to $1.0921

• The British pound rose 0.4% to $1.2664

• The Japanese yen fell 0.9% to 143.24 per dollar

Cryptocurrencies

• Bitcoin fell 5.3% to $42,749.04

• Ether fell 6.2% to $2,219.55

Tie up

• The 10-year Treasury yield fell two basis points to 3.90%

• The yield on 10-year German government bonds fell four basis points to 2.02%

• The yield on 10-year British government bonds was little changed at 3.64%

raw materials

• West Texas Intermediate crude oil prices rose 3.8% to $73.02 a barrel

• Spot gold fell 0.8% to $2,041.50 an ounce

This story was produced with support from Bloomberg Automation.

– With support from Alex Nicholson, Tassia Sipahutar, Pearl Liu, Alice Gledhill, James Hirai and Joanna Ossinger.

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