US stocks declined after strong retail sales and at least two Federal Reserve speakers recast bets that the central bank’s policy tightening regime is nearing an end.
(Bloomberg) — US stocks declined after strong retail sales and at least two Federal Reserve speakers recast bets that the central bank’s policy tightening regime is nearing an end.
The S&P 500 fell after a report showed retail sales posted the biggest increase in eight months in October, outpacing estimates and indicating the economy can withstand additional Fed hikes. The tech-heavy Nasdaq 100, which is typically more sensitive to interest rates, dropped as much as 1.7%.
The market pullback comes after a hefty rally fueled by softer-than-expected US inflation data that fanned expectations the Fed may be able to slow its tempo of interest-rate hikes. That alongside news of China’s post-Covid reopening had pushed the dollar and Treasury yields lower in recent days.
But on Wednesday, New York Fed President John Williams bruised sentiment after he said the central bank should avoid incorporating financial stability risks into its considerations as it raises interest rates. San Francisco Fed President Mary Daly, meanwhile, emphasized that a pause is “off the table.” Goldman Sachs Group Inc. now expects the Fed to boost its key rate to a range of 5% to 5.25%, up from the previous call of 4.75% to 5%.
“The market is just trying to grasp for news and it’s prone to overcompensate for the news, whether it’s good news or bad news,” Sandi Bragar, chief client officer at Aspiriant, said by phone. “We’re just at that point in the cycle where we think there’s still the high likelihood for potential downward trajectory of stocks as we head into 2023.”
The stronger retail numbers give the Fed more room to be aggressive, as officials have consistently communicated, Oksana Aronov, alternative fixed income head of markets strategy at JPMorgan Asset Management, said on Bloomberg TV. The disparate economic data that has hit the markets in recent weeks complicates the central bank’s mandate, she said.
In corporate news, Target Corp.’s shares plunged after it warned that US shoppers are pulling back. Micron Technology Inc. shares also tumbled after it said the market outlook for 2023 has weakened.
Earlier, comments from US President Joe Biden that Ukrainian air defenses, rather than by Russia, had likely caused Tuesday’s explosion in Poland soothed fears of an escalation in military conflict. While the White House backed Poland’s call on the matter, it emphasized that Russia was ultimately to blame.
Elsewhere, European Central Bank policy makers may slow down their tempo of rate hikes, with only a 50 basis-point increase next month, according to people with knowledge of the matter.
Key events this week:
- Fed’s Lael Brainard and SEC Chair Gary Gensler speak, Wednesday
- ECB President Christine Lagarde speaks, Wednesday
- Eurozone CPI, Thursday
- US housing starts, initial jobless claims, Thursday
- Fed’s Neel Kashkari, Loretta Mester speak, Thursday
- US Conference Board leading index, existing home sales, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.8% as of 1:36 p.m. New York time
- The Nasdaq 100 fell 1.3%
- The Dow Jones Industrial Average fell 0.1%
- The MSCI World index rose 1.1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro was little changed at $1.0357
- The British pound was little changed at $1.1872
- The Japanese yen fell 0.3% to 139.67 per dollar
Cryptocurrencies
- Bitcoin fell 2% to $16,551.33
- Ether fell 2.7% to $1,212.41
Bonds
- The yield on 10-year Treasuries declined five basis points to 3.72%
- Germany’s 10-year yield declined 11 basis points to 2.00%
- Britain’s 10-year yield declined 15 basis points to 3.15%
Commodities
- West Texas Intermediate crude fell 2.1% to $85.13 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Vildana Hajric, Emily Graffeo and Peyton Forte.
More stories like this are available on bloomberg.com
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