(Bloomberg) — Stock markets were heading for their longest losing streak since January as some big tech companies sold off despite falling bond yields.
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Stock prices have fallen for four consecutive days, and the S&P 500 index has fallen more than 4% from its all-time high. Semiconductor manufacturers took the brunt of the sell-off as ASML Holding NV’s orders declined. Nvidia led the megacap losses. A tug-of-war between bulls and bears unfolded as Wall Street’s favorite volatility gauge fluctuated wildly amid VIX option expirations.
After posting a 10% share price gain in the first quarter (strongest start since 2019), investors are wondering how far the market will rise in the short term, even given the continued strength of the economy. is becoming increasingly skeptical.
“A combination of geopolitical uncertainty, rising interest rates, a hawkish Fed stance, and dissatisfaction with inflation have temporarily given the bears the upper hand,” said Nationwide’s Mark Hackett.
The S&P 500 index is hovering around 5,030. The Nasdaq 100 fell about 1%. U.S. Treasuries expanded gains on strong demand for $13 billion in 20-year bond sales. The buying spree came a day after Jerome Powell watered down bets on interest rate cuts, pushing the two-year bond yield further below 5%.
The Federal Reserve’s Beige Book survey of regional businesspeople found that the U.S. economy has expanded “slightly” since late February, with companies reporting that it is becoming more difficult to pass on higher costs. Stated.
Powell suggested on Tuesday that policymakers would wait longer than previously expected to cut interest rates after a series of alarmingly high inflation rates. Fed officials have narrowly revised down their forecasts issued last month three times, but investors are currently only making one or two bets this year, according to futures markets.
“Fed Chair Powell was a total hawk,” said Win Hsin and Elias Haddad of Brown Brothers Harriman. “The Fed wants markets to tighten. Financial conditions remain too accommodative, and tightening conditions requires a combination of higher yields, wider spreads, a stronger dollar, and lower stock prices.” It is.”
UBS strategists led by Andrew Garthwaite say global stocks are facing tactical headwinds, but this is just a correction and stocks are expected to continue rising this year.
They pointed to positive developments such as increased productivity and profits from artificial intelligence, lower guaranteed equity risk premiums, potential lower labor costs, and fewer concerns about margin pressure.
The equity risk premium for U.S. stocks (a measure of the difference in expected returns between stocks and bonds) is now in significantly negative territory, something that hasn’t happened since the early 2000s.
This is not necessarily a negative indicator for the stock market, but it all depends on the business cycle. A decline in ERP not only promises an increase in future corporate profits, but also suggests that a bubble is brewing.
HSBC strategists led by Max Kettner say stock market fundamentals and technical trends remain supportive, suggesting the recent sell-off should be temporary, and investors are looking to take advantage of the decline in stock prices. The company is said to be taking a more bullish stance.
“Real money investors have recently begun to take a more constructive stance on the stock, but sentiment and positioning are not raising any warning signals,” they write.
U.S. corporate earnings are expected to follow a “healthier trajectory” through 2024, Morgan Stanley strategists said, giving investors growing confidence that companies can meet expectations.
The team, which includes Michelle Weaver and Michael Wilson, says the market is watching for profits to bottom out in the first quarter, recover gradually in the second quarter, and ultimately expand in the second half of the year. said.
Company highlights:
President Joe Biden is calling for higher tariffs on Chinese steel and aluminum as part of a series of steps to strengthen the U.S. steel sector and attract workers during this year’s election.
Microsoft’s $13 billion investment in OpenAI is aimed at avoiding a formal investigation by the European Union’s merger watchdog, allaying fears it could be forced to pull ties.
Jane Street Group LLC generated $10.6 billion in net trading revenue last year, and the proprietary trading firm continues to emerge as a dominant market maker.
US Bancorp lowered its outlook for the main driver of this year’s profit as lenders face pressure to pay more on deposits.
Abbott Laboratories raised the lower end of its full-year profit forecast after first-quarter profits and sales exceeded expectations on strong medical device sales.
This week’s main events:
Taiwan Semiconductor’s financial results, Thursday
US conference board leading index, number of existing home sales, number of new unemployment insurance claims, Thursday
Fed Director Michelle Bowman speaks Thursday
New York Fed President John Williams speaks Thursday
Atlanta Fed President Rafael Bostic speaks Thursday
BOE Deputy Governor Dave Lumsden and ECB Board Member Joachim Nagel speak on Friday
Chicago Fed President Austan Goolsby speaks on Friday
The main developments in the market are:
stock
As of 2:56 p.m. New York time, the S&P 500 was down 0.4%.
Nasdaq 100 fell 0.9%
The Dow Jones Industrial Average is little changed.
MSCI World Index falls 0.2%
currency
The Bloomberg Dollar Spot Index fell 0.4%.
The euro rose 0.5% to $1.0671.
Sterling rose 0.2% to $1.2454.
The Japanese yen rose 0.2% to 154.34 yen to the dollar.
cryptocurrency
Bitcoin fell 2.5% to $61,458.26.
Ether fell 1.4% to $3,027.43.
bond
The 10-year Treasury yield fell 9 basis points to 4.58%.
Germany’s 10-year bond yield fell 2 basis points to 2.47%.
UK 10-year bond yields fell 4 basis points to 4.26%.
merchandise
West Texas Intermediate crude oil fell 3.1% to $82.72 a barrel.
Spot gold fell 0.4% to $2,374.31 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Jessica Mentone, Michael Musika, Sagarika Jaisinghani, and Farah ElBalawy.
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