Stock, Bond Dips Extend in Afternoon Trading: Markets Wrap

This content was published on December 12, 2024 - 21:26

6 minutes

(Bloomberg) — A rally that shot the world’s biggest technology stocks to all-time highs lost steam Thursday as Wall Street held off on big bets ahead of the Federal Reserve’s policy meeting next week. US government bonds fell as investors tried to gauge when the central bank will hit pause on interest-rate cuts.

The Nasdaq 100 fell 0.6% while the S&P 500 fell 0.4% after higher-than-expected jobless claims and too hot producer price data. The equity benchmarks had made strong gains in the prior session after an in-line US inflation report almost fully baked in bets on a quarter-point interest rate cut at the Fed’s Dec. 18 meeting.

Treasuries failed to hold onto an advance after data showed initial jobless claims rose to 242,000 for the week ended Dec. 7, ahead of economists’ estimates for 220,000. November producer price data released at the same time was mixed, with some measures exceeding estimates.

Despite Thursday’s pause Fundstrat’s Mark Newton sees more room for stocks benchmarks to set new highs into year end.

“While some investors might fret at a rising unemployment rate and PPI having surpassed CPI now on an annual basis, it’s a known fact that the PPI doesn’t really affect core PCE, which is the Fed’s preferred gauge for inflation,” said the firm’s head of technical strategy.

With only a handful of stocks — including Nvidia Corp. and Apple Inc. — responsible for the bulk of the the S&P 500’s 27% year-to-date run some on Wall Street are growing increasingly concerned.

“Shorter-term breadth gauges have waned sharply, but this doesn’t have to bring about a correction,” Newton wrote in a note to clients. Small-caps, transports and the Dow Jones Industrial Average could push back to new highs, he said.

The S&P 500 gauge is now headed for its ninth consecutive day where the number of constituents falling outnumbers those rising. That’s the longest such streak since Bloomberg started collecting the data in 2004.

Meanwhile, Treasuries failed to hold onto an advance after data showed initial jobless claims rose to 242,000 for the week ended Dec. 7, ahead of economists’ estimates for 220,000. November producer price data released at the same time was mixed, with some measures exceeding estimates.

“With high egg prices appearing to play a key role in the hotter-than-expected headline PPI, traders may be focusing more on the jump in jobless claims,” according to Chris Larkin at E*Trade from Morgan Stanley. While there’s been a steady stream of solid labor data, “the Fed is primed to be sensitive to any signs of a softening jobs picture.”

With a third-consecutive cut from the US central bank widely expected, traders’ focus is turning to the Fed’s projections for next year. Still-elevated inflation pressures and the prospect of a pause in early-2025 have left investors on edge.

US bonds fell for the fourth day in a row, Treasuries have climbed after readouts this week only to see those gains evaporate. The yield on the 10-year rose nearly to 4.33%.

Stan Shipley at Evercore ISI expects the benchmark note to end 2025 around 4.6%.

“The uncertainty of the US economic outlook has increased even though the recession odds have vanished,” Shipley wrote. “This is because economic policy details are not clear.”

To Ella Hoxha, head of fixed income at Newton Investment Management, a “hawkish cut” from the Fed is possible next week. “In that setup, the risk is still that you price the Fed to be a bit more cautious rather than more dovish.”

In the EU, the European Central Bank met expectations for a quarter-point of interest-rate easing, while the Swiss National Bank made a surprising 50 basis-point rate reduction.

The euro wobbled after the ECB cut. Earlier in the week, Canada lowered its policy rates by a half point, while Australia hinted it’s moving toward easing and China vowed to deliver rate cuts. Japan, meanwhile, signaled it’s in no hurry to hike rates.

In commodities, WTI crude contracts pared losses after the International Energy Agency warned of a supply glut in 2025. Gold tumbled as much as 1.6%, the biggest intraday drop in more than two weeks.

Corporate Highlights:

Riot Platforms Inc.’s stock jumped after a report that activist investor Starboard Value had built up a significant stake in the Bitcoin miner.
Adobe Inc. was under pressure after giving a disappointing annual sales outlook, underscoring anxieties that the creative software company may lose business to emerging artificial intelligence-based startups.
Warner Bros Discoverny Inc. is changing its corporate structure and creating separate divisions for its cable and streaming businesses.
ServiceTitan Inc. shares opened 42% above their initial public offering price after the residential and commercial repair software company raised $624.8 million.
Apple Inc.’s ambitious plan to create in-house components for its devices will include switching to a homegrown chip for Bluetooth and Wi-Fi connections starting next year, a move that will replace some parts currently provided by Broadcom Inc.

Key events this week: