(Bloomberg) — Technology companies dragged down stocks on speculation that rate hikes will reduce the appeal of the highly valued industry that has powered the bull market in equities.
The Nasdaq 100 sank about 2.5%, led by losses in giants like Apple Inc. and Tesla Inc. The rout in tech drove the S&P 500 down, erasing gains that were triggered by bets that central banks can move toward tighter policies to fight inflation without derailing the economy. Financial, commodity and some of the defensive groups advanced. European equities jumped as officials unveiled a gradual pullback of pandemic stimulus, while the pound gained as the Bank of England unexpectedly raised rates. Bitcoin slumped.
Even with the weakness on Thursday, megacap tech stocks remain among the most notable outperformers of 2021. Although a rise in interest rates threatens to make companies with relatively high valuations less attractive in the near term, many analysts expect them to continue to climb due to their strong earnings-growth potential.
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Meantime, policy makers are weighing measures to fight price pressures while balancing risks to growth. The European Central Bank temporarily boosted regular monthly bond buying for half a year to smooth the exit from crisis stimulus. The announcement followed Wednesday’s decision by the Federal Reserve to accelerate the pace at which it tapers asset purchases, while projecting rate hikes through 2024.
Comments:
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“Bitcoin and big tech are getting punished today as investors reallocate some of their more profitable risky bets. The growth outlook still remains upbeat for next year,” with some traders rotating back into cyclicals, said Edward Moya, senior market analyst at Oanda.
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“While we expect increased stock market volatility as the Federal Reserve embarks on normalizing policy, equity markets should end the year higher as the economy still remains strong, which should lead to continued earnings growth,” said Richard Saperstein, chief investment officer at Treasury Partners.
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“I do think that central banks are being reactive, which is good. If inflation does start to moderate as these major central banks are still expecting, we may actually expect some turn in the policy direction in the later part of next year,” said Janet Mui, investment director at Brewin Dolphin.
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Corporate highlights:
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Adobe Inc. forecast revenue for the first fiscal quarter and full year 2022 that fell short of analysts estimates.
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Delta Air Lines Inc. projected it will report a profit this quarter, citing strong demand for travel and a decline in jet-fuel prices.
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Reddit Inc., the social-media platform that helped fuel this year’s meme stock frenzy, said it has confidentially filed for an initial public offering.
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Air France-KLM agreed to buy 100 single-aisle planes from Airbus SE in another major order setback for Boeing Co. — which had supplied aircraft the new jets will replace.
Applications for state unemployment benefits rose last week — but remained near the lowest levels of the pandemic as the labor market recovery continues. U.S. housing starts strengthened in November to the fastest pace in eight months, while output at factories advanced solidly.
Here are some key events this week:
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Bank of Japan monetary policy decision, Friday.
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S&P Dow Jones Indices quarterly rebalance effective after markets close, Friday.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
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The S&P 500 fell 1% as of 3:06 p.m. New York time
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The Nasdaq 100 fell 2.6%
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The Dow Jones Industrial Average fell 0.2%
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The MSCI World index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index fell 0.4%
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The euro rose 0.3% to $1.1320
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The British pound rose 0.3% to $1.3304
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The Japanese yen rose 0.4% to 113.61 per dollar
Bonds
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The yield on 10-year Treasuries declined four basis points to 1.42%
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Germany’s 10-year yield advanced one basis point to -0.35%
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Britain’s 10-year yield advanced two basis points to 0.76%
Commodities
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West Texas Intermediate crude rose 1.5% to $71.90 a barrel
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Gold futures rose 1.9% to $1,798.70 an ounce
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