S&P records worst day in two months, bonds rise: markets turn

By | December 20, 2023

(Bloomberg) — High-flying stocks had their worst day in months on Wednesday after Wall Street warned of a pullback in the rally sparked by the Federal Reserve’s pivot last week.

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The Nasdaq 100 ended the session down 1.5%, its biggest single-day drop in eight weeks, after the tech-heavy benchmark retreated from its latest all-time high. The S&P 500 fell at a similar pace in its sharpest decline since September 26.

Some in the market speculated that the expiring zero-day options, which traded on Wednesday, helped accelerate the sell-off as option traders sold more to rebalance their positions before expiration.

Relative strength readings on the gauges traded at levels typically observed before a decline. Wall Street’s fear gauge – the VIX – also rose sharply, trading at its lowest level in several years.

Cameron Dawson of Newedge Wealth warned of the market risks.

“It certainly seems like it has become very one-sided, and it’s a scary world if everyone gets on one side of the boat,” Newedge Wealth’s chief investment officer told Bloomberg Television. “The market is very extensive, we see that it is overbought. But we are in a melt-up period and often things can get even crazier before there is a real relapse.”

Jim Caron, portfolio solutions CIO at Morgan Stanley Investment Management, is also cautiously looking ahead to the new year. “It will become much rockier and more uncertain in the future.”

Read Surveillance: Morgan Stanley sees a year of dangerous living

Government bonds advanced as the yield on the policy-sensitive two-year rate posted a 10 basis point move and the 10-year yield fell to 3.9%. UK 10-year debt led the global bond rally after data showed a slowdown in UK inflation.

Traders also crunched data showing that U.S. consumer confidence rose in December by the most since early 2021. The second straight monthly increase shows Americans are less concerned about a recession, but economists are still keeping a close eye on the labor market.

“While a sustained improvement in confidence would be a positive signal on consumer attitudes and spending, an easing of labor market conditions due to restrictive policies is likely to weigh on demand, consumption and growth going forward,” says Rubeela Farooqi of High Frequency Economics. wrote.

In addition, sales of previously owned U.S. homes rose to a 13-year low in November. According to a report from the National Association of Realtors, previous data showed that mortgage rates fell to their lowest level since June.

Some of Wall Street’s biggest bulls entering 2023 remained undeterred by the prospect of more strength next year. Tom Lee of Fundstrat Global Advisors LLC, who came closest to predicting the S&P 500’s trajectory this year, according to strategists tracked by Bloomberg, expects the benchmark to reach 5,200 in 2024.

Read more: These stock optimists who beat 2023 expectations see even more gains ahead

Investors are also beginning to weigh risks from possible shipping delays and increases in freight costs, as companies divert cargo away from the Red Sea to avoid militant attacks. This diversion will mean higher shipping costs and longer delivery times, Bloomberg Economics wrote in a note.

The focus now turns to the upcoming data readouts, including Thursday’s GDP print and Friday’s data on personal consumption expenditure — the Fed’s preferred inflation gauge.

In terms of commodities, crude oil fell below $75 a barrel, while gold plummeted.

Main events this week:

  • Bank Indonesia’s interest rate decision, Thursday

  • US GDP, Initial Unemployment Claims, Conf. Board leading index, Thursday

  • Nike earnings, Thursday

  • Japanese inflation, Friday

  • UK GDP, Friday

  • US personal income and spending, new home sales, durable goods, University of Michigan consumer confidence index, Friday

Some of the major moves in the markets:

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  • The S&P 500 was down 1.5% as of 4 p.m. New York time

  • The Nasdaq 100 fell 1.5%

  • The Dow Jones Industrial Average fell 1.3%

  • The MSCI World index fell 1%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.3%

  • The euro fell 0.5% to $1.0931

  • The British pound fell 0.8% to $1.2626

  • The Japanese yen was little changed at 143.75 per dollar

Cryptocurrencies

  • Bitcoin rose 2.2% to $43,451.12

  • Ether was little changed at $2,184.19

Bonds

  • The yield on ten-year government bonds fell by seven basis points to 3.86%

  • The German ten-year yield fell by four basis points to 1.97%

  • The British ten-year yield fell by 12 basis points to 3.53%

Raw materials

  • West Texas Intermediate crude fell 0.2% to $73.76 a barrel

  • Spot gold fell 0.5% to $2,029.78 an ounce

This story was produced with the help of Bloomberg Automation.

–With help from David Marino, Vildana Hajric, Alexandra Semenova, Sagarika Jaisinghani, Sujata Rao, and Alice Atkins.

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