U.S. stocks gave up early gains and turned lower, extending a recent stretch of losses that have pulled major indexes lower to start the year.
The technology-heavy Nasdaq Composite Index shed 1.15% and finished the day 10.5% below its all-time closing high from last November. A decline of greater than 10% is considered a correction for a stock index.
The S&P 500 fell 1%. The benchmark gauge lost 1.8% Tuesday, its second decline in three trading days. The Dow Jones Industrial Average also fell 1%, or 339 points, to 35029.
Wednesday’s trading activity continued a tumultuous stretch for major indexes, with stocks paring their earlier gains. In the first weeks of January, many investors have started dumping shares of technology companies and piling into other corners of the market in anticipation of rising interest rates. Some investors are positioning for the Covid-19 pandemic to turn into an endemic.
Investors have stepped up bets that the Federal Reserve and other major central banks will tighten monetary policy in the coming months, withdrawing a pillar of support for markets. Mounting expectations of interest-rate rises follow evidence that the drivers of inflation have broadened beyond the supply-chain shock that fueled price gains for much of 2021.
Recent volatility is “really all about inflation and how aggressive central banks are going to be to counteract it,” said
Brian O’Reilly,
head of market strategy at Mediolanum Asset Management, adding that inflation could also curtail economic growth by knocking consumption. “Certainly, the market is nervous at the moment,” he said.
As a result, many investors have backed away from what was one of the hottest areas of the market: tech. The Nasdaq Composite is down 8% this year, a much sharper decline than the S&P and Dow.
Government-bond prices edged up Wednesday, pushing down yields. Yields on benchmark 10-year Treasury notes slipped to 1.836% from 1.866% Tuesday, which was their highest level since January 2020. Yields on interest rate-sensitive two-year notes were down to 1.031% from 1.038% Tuesday
There has also been a big rotation among individual stocks and sectors. The S&P 500’s value index is outperforming its growth index by around 6.8 percentage points this month, on pace for the biggest monthly outperformance since December 2000, according to Dow Jones Market Data.
And there are signs that individual investors—a key force behind 2021’s stock-market rally—are cooling on tech, according to analysts at Vanda Research. Retail investors have been buying shares of financials and energy companies while their purchases of highflying stocks like
and
have been dwindling, Vanda said.
“There is currently a knee-jerk reaction occurring in the market,” in response to rising bond yields, said
Dev Kantesaria,
founder of Valley Forge Capital. But, he added “equities today as a whole are very attractive relative to bond yields.”
Some of the U.S.’s biggest lenders reported rising earnings before the market opened.
shares rose 0.4% after the lender reported a jump in fourth-quarter profits, while Morgan Stanley’s shares gained 1.8% on profits that topped forecasts. U.S. Bancorp fell around 7.8% after the bank holding company posted a rise in compensation costs. This earnings season,
and
have also reported shelling out more in compensation.
Investors have stepped up bets that major central banks will tighten monetary policy.
Photo:
Wang Ying/Zuma Press
said consumers were undeterred by higher prices, leading to higher revenue and lifting shares of the consumer-goods company around 3.4%.
Europe’s most closely watched government bond yield turned positive for the first time since 2019. The yield on 10-year German bund rose as high as 0.021% Wednesday after trading in negative territory for over 30 months. Ten-year U.K. yields, meanwhile, reached their highest level since March 2019 after data showed inflation hitting a 30-year high.
Oil prices rose again after touching seven-year highs Tuesday. Brent crude futures rose 1.1% to $88.44, hitting the highest level since October 2014. Wednesday’s moves extend a rally driven in part by the potential for supply disruptions in Russia and the Middle East.
Overseas stock markets were mixed following Tuesday’s selloff on Wall Street. The Stoxx Europe 600 rose 0.2%, as gains for retail and resource stocks offset losses for food, drink and insurance companies. Asian stocks came under pressure, with Japan’s Nikkei 225 skidding 2.8%. China’s Shanghai Composite Index slipped 0.3%.
Write to Joe Wallace at joe.wallace@wsj.com and Gunjan Banerji at gunjan.banerji@wsj.com
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