Stocks Join Bonds in Falling as Fed-Cut Bets Wane: Markets Wrap

(Bloomberg) — Stocks and bonds retreated as data showing US business activity accelerated amid a pickup in inflation reinforced bets the Federal Reserve will remain on hold.

The S&P 500 dropped below 5,300, with all megacaps down except Nvidia Corp. The giant chipmaker jumped over 9% on a solid outlook, topping the historic $1,000 mark. The Dow Jones Industrial Average lost 1.5%, led by a plunge in Boeing Co. — which said it will continue to burn cash this quarter and in the full year. Treasury yields climbed, with the move led by shorter maturities.

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Swaps now fully price in a full quarter-point rate cut in December, versus November a day earlier. Growth in activity at service providers this month was the fastest in a year and manufacturing output expanded at a quicker pace. Such resilience is making it difficult for inflation to cool, helping explain why the Fed is intent on keeping rates higher for longer.

“Fed members have indicated they want to see more progress on inflation – fortunately the US economy still looks robust enough to take an extended rate pause,” said Don Rissmiller at Strategas Securities. “We continue to look for the first Fed rate cut in September.”

Treasury two-year yields climbed seven basis points to 4.94%. The dollar edged up. Bitcoin fell over 4%. Oil and gold retreated.

US policymakers earlier this month coalesced around a desire to hold rates higher for longer and “many” questioned whether policy was restrictive enough to bring inflation down to their target, according to Fed minutes released this week.

“The minutes are a reminder that while the Fed does not see another rate hike as likely — and certainly does not see it as a base-case — it will not rule out hikes if inflation does not behave,” said Chris Low at FHN Financial.

Meantime, another round of blowout earnings from artificial-intelligence darling Nvidia and the economy’s steady advance mean the S&P 500 likely has further room to rise, according to JPMorgan Chase & Co.’s trading desk.

“With the AI-theme still delivering and the macro hypothesis intact, we are likely to continue to make new all-time highs,” the team including Head of US Market Intelligence Andrew Tyler wrote in a note to clients.

Key events this week:

• Japan CPI
• Canada retail sales
• Germany GDP
• US durable goods, consumer sentiment, Friday
• Fed’s Christopher Waller speaks, Friday

Some market moves:

Stocks

• The S&P 500 fell 0.7% as of 4 p.m. New York time
• The Nasdaq 100 fell 0.4%
• The Dow Jones Industrial Average fell 1.5%
• The MSCI World Index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro fell 0.1% to $1.0809
• The British pound fell 0.2% to $1.2693
• The Japanese yen was little changed at 156.88 per dollar

Cryptocurrencies

• Bitcoin fell 4.3% to $66,428.35
• Ether fell 5.7% to $3,534.98

Bonds

• The yield on 10-year Treasuries advanced five basis points to 4.48%
• Germany’s 10-year yield advanced six basis points to 2.60%
• Britain’s 10-year yield advanced three basis points to 4.26%

Commodities

• West Texas Intermediate crude fell 0.9% to $76.87 a barrel
• Spot gold fell 2% to $2,331.70 an ounce

This story was produced with the assistance of Bloomberg Automation.

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