(Bloomberg) — Stocks fell at the end of a jittery week as tech sold off and a pile of options expiring Friday amplified market swings.
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Wall Street faced a quarterly episode ominously known as triple witching — in which derivatives contracts tied to stocks, index options and futures matured — compelling traders en masse to roll over their existing positions or to start new ones. About 19 billion shares changed hands on US exchanges. That’s roughly 60% above the three-month average volume.
“It’s a day in which the direction of the market is very, very difficult to predict,” said Matt Maley at Miller Tabak. “The ‘internals’ get so skewed by the expiration that they don’t tell us anything. It will be important that investors don’t use today’s action when trying to decipher what is going to happen in the marketplace next week and beyond.”
About $5.3 trillion were set to expire Friday, according to Rocky Fishman, founder of derivatives analytical firm Asym 500. The US options event came at a critical juncture for markets positioning for next week’s Federal Reserve policy meeting. A recent pickup in inflation has intensified the debate around the degree of easing officials will signal for 2024.
The S&P 500 dropped below 5,120, while the tech-heavy Nasdaq 100 fell over 1%. Adobe Inc. sank on a weak sales outlook. Nvidia Corp. saw a 10th straight weekly gain — with its artificial intelligence conference just days away. Treasury 10-year bonds saw their worst week this year.
“This week has been remarkably confusing on multiple fronts,” said Florian Ielpo at Lombard Odier Asset Management. “The macroeconomic news flow has made it clear that the US economy is unexpectedly slowing down, while inflation is decelerating at a slower pace. Instead of focusing on the economic slowdown, markets have fully embraced the inflation narrative.”
Traders in interest-rate swaps pushed bets on the timing of the full first, quarter-point Fed cut to the central bank’s July meeting. Officials last released quarterly forecasts in December, anticipating three quarter-point cuts in 2024, and they’re set to release an update of those projections — known as the dot plot — on March 20.
Economists at JPMorgan Chase & Co. changed their forecast for the Fed’s monetary-policy rate cuts over the course of all of 2024 to 75 basis points. Previously they expected a total of 125 basis points.
The glide path to the Fed’s 2% inflation target is anything but smooth and the final mile to the finish line is likely to take some time and a lot more data to gauge its progress, according to Carol Schleif at BMO Family Office.
“The earliest possible cut could be June, though we wouldn’t be shocked to see that delayed to later in the year if the data continues to come in hot as recent data has,” she noted. “Our base case is for three total rate cuts in 2024, though it’s possible that the Fed cuts rates even fewer times if the economic data surprises to the upside.”
The rally in equity markets could falter if sticky inflation prompts the Fed to turn more hawkish next week and signal fewer-than-expected rate cuts, according to Barclays Plc strategists led by Emmanuel Cau.
“With the Fed so far endorsing current market pricing of three cuts starting in June, investors continue to see the glass half full on the soft landing narrative,” they wrote.
Investors are dismissing the risk of stagflation, sending record flows into US equities, according to Bank of America Corp.
US equity funds got $56 billion in the week through March 13, strategist Michael Hartnett wrote in a note, citing EPFR Global. Technology stocks had the largest inflow among sectors, at $6.8 billion, rebounding from a record outflow.
Hartnett said a “new bout of stagflation means outperformance of gold, commodities, crypto, cash, a big steepening of the yield curve, and a very contrarian equity barbell of resources & defensives.”
Corporate Highlights:
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Nippon Steel Corp. said it’s determined to complete its $14.1 billion acquisition of United States Steel Corp., even after President Joe Biden stated the company should stay in US hands.
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JD.com Inc. said it will not make an offer for British electronics retailer Currys Plc, just days after US buyout firm Elliott Investment Management also walked away.
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Binance Holdings Ltd. has tightened requirements for listing new digital tokens, stepping up efforts to bolster investor protections on its platform.
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Boeing Co. has sent a so-called multi-operator message to operators of the 787 jetliner following an in-flight incident involving the long-distance jet a few days ago, in which the plane briefly and rapidly lost altitude, injuring multiple people on board.
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United Airlines Holdings Inc. is close to securing three dozen or more Airbus A321neo jets from aircraft lessors as it looks to replace Boeing Co. 737 Max 10 orders that are at least five years behind schedule, according to people familiar with the matter.
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Madrigal Pharmaceuticals Inc.’s drug Rezdiffra gained the first US approval to treat a potentially deadly liver disease that affects millions worldwide, succeeding in an area where some bigger rivals have failed.
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Reckitt Benckiser Group Plc plunged after a jury awarded an Illinois woman $60 million in damages, saying the company’s Enfamil baby formula led to the death of her premature baby.
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.7% as of 4 p.m. New York time
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The Nasdaq 100 fell 1.1%
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The Dow Jones Industrial Average fell 0.5%
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The MSCI World index fell 0.7%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro was little changed at $1.0889
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The British pound fell 0.1% to $1.2738
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The Japanese yen fell 0.5% to 149.06 per dollar
Cryptocurrencies
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Bitcoin fell 2.9% to $68,640.2
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Ether fell 4.4% to $3,672.6
Bonds
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The yield on 10-year Treasuries advanced two basis points to 4.31%
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Germany’s 10-year yield advanced two basis points to 2.44%
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Britain’s 10-year yield advanced one basis point to 4.10%
Commodities
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West Texas Intermediate crude fell 0.3% to $80.99 a barrel
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Spot gold fell 0.2% to $2,157.30 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Lu Wang, Carter Johnson and Farah Elbahrawy.
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