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Equities traded sharply lower on Thursday, as a sell-off in Big Tech groups and chipmakers weighed on major US indices.
Meanwhile, yields on the benchmark 10-year Treasury, a crucial barometer for expectations on the US economy and interest rate policy, fell below 4 per cent for the first time in six months.
The tech-heavy Nasdaq Composite closed down 2.3 per cent, having slid more than 3 per cent earlier. Every Magnificent Seven stock except Meta ended lower, and all but one company on the Philadelphia Semiconductor index — which tracks 30 stocks in the sector — declined as it had its worst day since 2020 with a 7.1 per cent loss.
The moves follow modest outlooks from chip designers Qualcomm and Arm on Wednesday evening, even as their profits mostly met consensus expectations.
“The bar has been set so high for these companies that it’s almost impossible for them to jump over it,” said Steve Sosnick, chief strategist at Interactive Brokers. “If you’re good, but your price is spectacular, that’s a disappointment.”
Broader indices eased off afternoon lows shortly ahead of the close, and the benchmark S&P 500 declined 1.4 per cent, with two-thirds of its members losing ground.
Small cap stocks also weakened. The Russell 2000 index lost 3 per cent, a bump in the road for a share gauge that has benefited from an investor rotation into smaller companies expected to benefit from Federal Reserve interest rate cuts.
“It’s one thing to be hopeful for better rates, it’s another thing entirely to get those lower rates because the economy stinks,” Sosnick said. “Twenty-five basis points here or there isn’t necessarily going to help dig themselves out of a hole.”
The Vix index, popularly known as Wall Street’s “fear gauge”, touched its highest level since April.
US Treasury yields sank to their lowest level in six months as weak economic data spurred traders to double down on bets that the Federal Reserve will deliver a series of interest rate cuts this year.
Bonds had already rallied in the wake of Wednesday’s decision by the Fed to keep rates at a 23-year high, as chair Jay Powell signalled that the central bank could finally start lowering borrowing costs next month.
They extended gains on Thursday as the latest signs of a slowing jobs market boosted expectations for three quarter-point rate cuts by the end of the year. The benchmark 10-year Treasury yield fell 0.14 percentage point to 3.97 per cent, below 4 per cent for the first time since early February.
Two-year yields, which closely track interest rate expectations, fell 0.19 percentage points to 4.15 per cent. Yields fall as prices rise.
“The data is moving south and that is calling into question . . . whether we may be looking at lower long-term interest rates,” said Robert Tipp, chief investment strategist at PGIM Fixed Income. Markets were now pricing in some chance of an extra-large half-point rate cut later in the year, Tipp added.
The moves came as figures published on Thursday showed new applications for unemployment aid, a proxy for job cuts, at their highest level since last August. Separate data showed the fourth consecutive month of contraction in manufacturing, as well as a sharp downturn in employment in the sector.
Those figures, which come ahead of the crucial monthly US jobs report on Friday, “will add to concerns that the Fed has left it too late to begin loosening policy”, said Thomas Ryan, North America economist at Capital Economics.
Soaring tensions in the Middle East following the assassination of Hamas’s political leader in Tehran and a senior commander of Hizbollah in Beirut have further boosted Treasuries, which are a haven for investors, according to analysts.
“The move is a combination of a dovish Fed, softer data, as well as some geopolitical risk . . . There is a fear that the situation in the Middle East [will] expand and worsen,” said Gennadiy Goldberg, head of US rates strategy at TD Securities.
Despite warning about a weakening labour market, Fed officials on Wednesday indicated they would need “greater confidence” that inflation was falling before they were willing to cut rates. Some analysts said that bond investors were ignoring that cautious message from the central bank.
“Everything we heard from Powell yesterday was calm and collected,” said Blake Gwinn, head of US rates strategy at RBC Capital Markets. “I think the market is getting carried away with the data this morning.”
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