Big Tech Gets Crushed, Bonds Gain in Run-Up to Fed: Markets Wrap

(Bloomberg) — Wall Street traders gearing up for the Federal Reserve decision scrambled to digest a selloff in big tech, the Treasury refunding plans and weaker-than-forecast economic data. When trying convey Wednesday’s narrative, one could even point to fresh concerns about regional lenders — though banks came well off session lows.

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The most-influential group in the S&P 500 got hammered on Wednesday after some of its biggest names failed to live up to high expectations around artificial intelligence. Microsoft Corp., Alphabet Inc. and Advanced Micro Devices Inc. — among the companies that have led the market rally from the bottom — disappointed investors betting that an AI bonanza would quickly fuel results. This time around, not even a slide bond yields was able to lift the tech space.

“These are good numbers, but the expectations were huge and there is a real issue of traveling and arriving,” Peter Oppenheimer, Goldman Sachs Group Inc. chief global equity strategist, said on Bloomberg Television. “These companies are generating fantastic revenue growth and are in a very strong position, but I think the upside from a market perspective in the short term was likely to be limited given the expectations that have been priced in.”

The Nasdaq 100 fell about 1.5%, while the S&P 500 trimmed its January advance. The KBW Bank Index lost 0.2%, paring a slide of as much as 1.5%. A measure of regional banks trimmed its losses by more than half after earlier slumping over 3.5% on New York Community Bancorp’s surprise loss. Treasury two-year yields sank 12 basis points to 4.2%, while those on 10-year bonds slid below 4%. The dollar retreated.

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The Federal Open Market Committee is poised to keep rates in a range of 5.25% to 5.5% at its two-day policy meeting ending Wednesday, a 22-year high first reached in July. The rate decision and accompanying statement will be released at 2 p.m. in Washington. Chair Jerome Powell will hold a press conference 30 minutes later.

Investors see a roughly 40% chance the central bank will lower rates for the first time in March, nearly eight months after the last rate hike, but most Fed officials have said it’s too soon to speculate on such a pivot. Powell may say he’s gratified by recent declines in inflation while continuing to indicate little urgency to cut, pointing to a solid labor market and an economy that’s growing strongly.

“In our view, the market is still too optimistic about the timing and pace of easing,” said Solita Marcelli at UBS Global Wealth Management. “Given the potential for disappointment on the outlook for Fed policy, we advise investors to brace for further volatility ahead.”

Corporate Highlights

• Boeing Co. declined to give financial guidance for 2024, sending a message to investors that it’s focused squarely on addressing a troubling string of quality slips that culminated in a near-catastrophic panel blowout on a 737 Max early this month.

• Mastercard Inc.’s fourth-quarter earnings beat analysts’ forecasts even as operating expenses grew more than analysts expected.

• Biogen Inc. will stop studying and selling the controversial Alzheimer’s drug Aduhelm, capping years of debate over its efficacy and disappointment as it failed to meet commercial expectations.

• Health insurer Cigna Group agreed to sell its Medicare business to Health Care Service Corp. for $3.3 billion, the companies announced in a statement Wednesday.

• Saudi Arabia is considering plans to revive a follow-on offering in Aramco as soon as February, in a multibillion-dollar deal that’s likely to rank among the biggest share sales in recent years, according to people familiar with the matter.

Key events this week:

• China Caixin manufacturing PMI, Thursday

• Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Thursday

• US productivity, construction spending, ISM Manufacturing, initial jobless claims, Thursday

• Apple, Amazon, Meta, Deutsche Bank, BNP Paribas earnings, Thursday

• Bank of England interest rate decision, Thursday

• US employment report, University of Michigan consumer sentiment, factory orders, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.8% as of 11:10 a.m. New York time

• The Nasdaq 100 fell 1.5%

• The Dow Jones Industrial Average rose 0.1%

• The Stoxx Europe 600 rose 0.2%

• The MSCI World index fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.1% to $1.0856

• The British pound rose 0.2% to $1.2721

• The Japanese yen rose 0.8% to 146.37 per dollar

Cryptocurrencies

• Bitcoin fell 0.3% to $43,426.15

• Ether fell 2.1% to $2,329.31

Bonds

• The yield on 10-year Treasuries declined eight basis points to 3.95%

• Germany’s 10-year yield declined 11 basis points to 2.16%

• Britain’s 10-year yield declined nine basis points to 3.81%

Commodities

• West Texas Intermediate crude fell 1.4% to $76.74 a barrel

• Spot gold rose 0.5% to $2,047.85 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from John Viljoen and Isabelle Lee.

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