Tech Sinks Stocks in Reversal After Post-Fed Rally: Markets Wrap

(Bloomberg) -- Technology companies drove stocks down 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 the most since September, led by losses in giants like Apple Inc. and Tesla Inc. Software company Adobe Inc. tumbled 10% on disappointing revenue forecasts, while a gauge of chip stocks slumped over 4%. The S&P 500 erased gains that were earlier triggered by bets central banks can tighten policies to fight inflation without derailing the economy. Financial and commodity shares rose. Bitcoin slid. FedEx Corp. climbed in late trading after profit beat estimates.

Even with the weakness on Thursday, tech shares remain among the most-notable outperformers of 2021. Valuations have soared to levels last seen during the dot-com bubble, with Apple recently approaching what would be a historic $3 trillion market capitalization. While the outlook for rate hikes threatens the industry’s appeal, several analysts expect the group to still do well due to its strong earnings potential.

Policy makers are weighing measures to fight price pressures while balancing risks to growth. European equities jumped as officials unveiled a gradual pullback of pandemic stimulus, while the pound gained as the Bank of England unexpectedly raised rates. The announcements followed Wednesday’s decision by the Federal Reserve to accelerate the pace at which it tapers asset purchases, while projecting rate hikes through 2024.

Read: Powell Resets Fed Goals for Job Market in Light of Covid Reality

Comments:

• “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.
• “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.
• “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.

Read: Biden Economic Bill Pushed to 2022 Amid Democrats’ Discord

Corporate highlights:

• Apple is hiring engineers for a new office in Southern California to develop wireless chips that could eventually replace components supplied by Broadcom Inc. and Skyworks Solutions Inc.
• Delta Air Lines Inc. projected it will report a profit this quarter, citing strong demand for travel and a decline in jet-fuel prices.
• 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.

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:

• Bank of Japan monetary policy decision, Friday.
• 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

• The S&P 500 fell 0.9% as of 4 p.m. New York time
• The Nasdaq 100 fell 2.6%
• The Dow Jones Industrial Average was little changed
• The MSCI World index fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.5%
• The euro rose 0.4% to $1.1332
• The British pound rose 0.5% to $1.3325
• The Japanese yen rose 0.3% to 113.68 per dollar

Bonds

• The yield on 10-year Treasuries declined three basis points to 1.42%
• Germany’s 10-year yield advanced one basis point to -0.35%
• Britain’s 10-year yield advanced two basis points to 0.76%

Commodities

• West Texas Intermediate crude rose 1.5% to $71.93 a barrel
• Gold futures rose 2% to $1,799.70 an ounce

©2021 Bloomberg L.P.