The downtrend in US stocks persisted into the new year, with a four-day losing streak for tech stocks, while bonds managed to gain ground in the wake of the Federal Reserve’s latest meeting minutes. The Nasdaq 100 recorded a 1.1% decline, marking its longest losing streak in over two months, as investors continued to pull back from last year’s high-performing tech sector. The S&P 500 saw a 0.8% slide, and the Russell 2000 small-caps gauge experienced its most significant drop since the March banking crisis. Tesla Inc. and semiconductor stocks faced declines, and crypto-related equities struggled as Bitcoin erased most of its gains for the year.
The US dollar strengthened against most Group-of-10 peers for the fourth consecutive day, its longest run since November.
Federal Reserve policymakers hinted at the potential for prolonged restrictive rates last month, with the possibility of rate cuts later in the year. However, swaps traders have tempered their expectations for rate cuts, reducing bets on a full quarter-point cut to the benchmark rate by the March meeting.
Treasury yields finished the day near session lows, with the 10-year rate reversing after briefly surpassing 4%, the highest since mid-December.
Despite a seemingly hawkish update from the Fed, some market observers, like Ian Lyngen at BMO Capital Markets, noted that the tone had fallen on indifferent ears. Morgan Stanley’s Ellen Zentner emphasized that while the Fed’s focus is on better-balanced risks to growth and inflation, policy is expected to remain restrictive for some time.
Richmond Fed President Thomas Barkin refrained from predicting the timing of the first rate cut by the US central bank, highlighting the evolving conditions and the need for a flexible approach.
Economic data showed the Institute for Supply Management’s manufacturing gauge at 47.4 last month, indicating a contraction since late 2022. Separately, job openings slightly declined in November. Analysts, including Rubeela Farooqi of High Frequency Economics, suggested that these data align with the Fed’s view of the next move in rates likely being lower, potentially in Q2.
Looking ahead, Friday’s jobs report could further solidify the narrative of a cooling economy. According to ING’s James Knightley, the composition of job growth is crucial in determining the prospect for rate cuts in 2024.
In the cryptocurrency market, Bitcoin experienced a slump, erasing most gains for the year. Stocks linked to the sector, including MicroStrategy Inc. and Coinbase Global Inc., faced declines.
Corporate news featured Walt Disney Co.’s CEO, Bob Iger, seeking investor support to counter pressure from activist investor Nelson Peltz. Barrick Gold Corp. is reportedly exploring the potential takeover of First Quantum Minerals Ltd., gauging support from major investors.
Cigna Group saw a decline following a Wall Street Journal report suggesting it was nearing a deal to sell its Medicare business for $3 billion to $4 billion.
Key events for the week include China Caixin services PMI, Eurozone S&P Global Eurozone Services PMI, US initial jobless claims, ADP employment, Eurozone CPI, PPI, US nonfarm payrolls/unemployment, factory orders, and ISM services index.
Market Movements:
- S&P 500: -0.8%
- Nasdaq 100: -1.1%
- Dow Jones Industrial Average: -0.8%
- MSCI World index: -0.9%
Currency Movements:
- Bloomberg Dollar Spot Index: +0.2%
- Euro: -0.2% to $1.0921
- British Pound: +0.4% to $1.2664
- Japanese Yen: -0.9% to 143.24 per dollar
Cryptocurrency Movements:
- Bitcoin: -5.3% to $42,749.04
- Ether: -6.2% to $2,219.55
Bonds:
- 10-year Treasury Yields: -2 basis points to 3.90%
- Germany’s 10-year yield: -4 basis points to 2.02%
- Britain’s 10-year yield: Little changed at 3.64%
Commodities:
- West Texas Intermediate crude: +3.8% to $73.02 a barrel
- Spot gold: -0.8% to $2,041.50 an ounce
