US equities fell on Wednesday as investors lost hope for quick interest rate reduction in the face of new employment data and minutes from the most recent Federal Reserve meeting suggesting that the exact timing of rate cuts is still up in the air.
The benchmark S&P 500 (^GSPC) dropped around 0.8%, while the Dow Jones Industrial Average (\DJI) dropped more than 0.7%, or 285 points. Following a brutal session in which tech companies lost approximately 1.6% of their value, the Nasdaq Composite (^IXIC) fell by roughly another 1.2% on the day.
On Wednesday, investors were confronted with more indications of a slowing US labour market. At the end of November, there were 8.79 million job opportunities, the fewest since March 2021, according to new statistics from the Bureau of Labour Statistics. Bloomberg questioned economists, and they predicted 8.82 million positions.
The worst start to a year in decades for stock indices and bond prices has dashed hopes that the year-end market euphoria would continue into 2024. For the fourth straight day, bonds declined, causing the 10-year Treasury yield (^TNX) to rise to about 4% before turning around in the afternoon. On Wednesday, the yield on the 10-year Treasury note closed at about 3.91%.
A comeback of the 2023 tech trade in January might be the market’s largest pain trade to start 2024 since so many investors were rushing into riskier segments of the market at the end of last year, such as the Russell 2000, Financials, and Real Estate.
Ohsung Kwon, a US equities strategist at Bank of America, told Yahoo Finance, “Anecdotally, we were hearing that from clients and from other sell-side firms that the equal-weighted index is likely to outperform and that’s becoming overly consensus.”
Thus, Kwon’s team at BofA believes that the market’s pain trade might occur if the market’s current turn towards widening doesn’t hold in January and if the January surge in the cap-weighted S&P 500 and Magnificent Seven stocks occurs.
Megacaps aren’t necessarily expected to surge in 2024, Kwon noted, but generally, the business still thinks the equal-weighted S&P 500 and cyclicals would do better.
BofA is now just emphasising that there has been a noticeable change from the tech-driven market consensus, which should be noted in the next trading activity.
Following news of an interruption at a significant Libyan oil field and an assurance of unity from the oil consortium OPEC, oil prices spiked on Wednesday.
The closing price of West Texas Intermediate (CL=F) was $72.70 per barrel. A barrel of Brent (BZ=F) oil ended the day at $78.25.
The dramatic increase occurs when El Sharara, a facility that produces 300,000 barrels per day, was forced to close due to protests. The interruption exacerbates worries about supply interruptions resulting from assaults in the Red Sea region.
Houthi rebels backed by Iran claimed on Wednesday that they attacked a container ship sailing in the direction of Israel. The action was taken in reaction to an attempted vessel hijacking in the Red Sea on Sunday, which saw three Houthi boats destroyed by US Navy helicopters.
The possibility of a wider war endangering Iran’s oil output has caused prices to rise.
Dennis Kissler, senior vice president at BOK Financial, stated on Wednesday that “the real threat to prices is the Iranian oil exports (near 2 million barrels per day) that could suddenly be taken off the global market.”
In a statement released on Wednesday, OPEC noted that its members “re-affirm their steadfast commitment to the shared objectives of unity and cohesion”.
Market players viewed with scepticism the most recent output curbs imposed by the Organisation of Petroleum Exporting Countries and their partners last year. Due to quota problems, Angola announced last month that it was quitting the cartel.
Officials at the Federal Reserve are more optimistic that inflation will be more under control by the end of 2023.
“Participants saw upside risks to inflation as having diminished but noted that inflation was still well above the Committee’s longer-run goal and that a risk remained that progress towards price stability would stall,” the press release stated.
The current policy rate is “probably at or near its peak for this tightening cycle,” according to participants, but the precise course will depend on “how the economy evolves.”
Following the company’s announcement that it intends to reduce 15% of its personnel as part of an overhaul of its operating model, shares of Xerox (XRX) dropped by more than 8%.
The stock of Eli Lilly (LLY) surged over 4%, reaching its highest point in eight weeks. UBS selected Eli Lilly as a top pharmaceutical option for 2024 on Wednesday, noting this year’s catalysts for the company, including enhancements to its weight-loss medication Mounjaro.
On Wednesday, AMC (AMC) shares fell to an all-time low. The stock has suffered since becoming popular as memes, especially after the COVID lockout and the Hollywood strikes. AMC’s stock fell 83% in 2023.
According to the December ISM manufacturing data, which was made public on Wednesday, the industry continued to decrease for the fourteenth straight month.
However, the index score of 47.4 was higher than the 46.7 reading from the previous month and higher than the 47.1 projection from Wall Street.
Though the index is just rising over its lowest point in six months, Thomas Simons, US economist at Jefferies, doesn’t believe a rebound is yet underway.
In a statement to customers on Wednesday, Simons stated, “The environment for capex investment remains very challenging due to high rates and uncertainty about the economy.” “The feint hope of rate cuts coming around the corner offers some upside risk for the sector going forward, but it is still a long way off from recovery.”
Wednesday saw a more than 3% increase in oil futures due to supply fears raised by news of a large outage to a Libyan oilfield.
During the morning session, West Texas Intermediate (CL=F) reached a high of $72.75 per barrel. At $78.29, Brent (BZ=F) reached a session high.
Over the past several sessions, futures have been erratic due to worries about escalating tensions in the Red Sea, which is connected to the Suez Canal, a vital shipping route.
Tuesday saw fluctuations in oil prices between positive and negative areas following Iran’s deployment of a warship to the Red Sea.
Senior vice president at BOK Financial Dennis Kissler stated, “The real threat to prices is the Iranian oil exports (near 2 mil bbls/day) that could be suddenly taken off the global market.”
November had the lowest number of job opportunities since March 2021; this figure was below what Wall Street had anticipated and indicates that the labour market would continue to decline until the end of 2023.
According to fresh statistics provided by the Bureau of Labour Statistics on Wednesday, there were 8.79 million available jobs at the end of November, a little reduction from the 8.85 million job vacancies in October. According to a Bloomberg survey of economists, 8.82 million positions were anticipated.
The survey also revealed that the rate of resignations, which is a gauge of employee confidence, decreased from 2.3% to 2.2% in the preceding month. Furthermore, the JOLTS data revealed that 5.5 million hiring were made in the month, a minor down from the 5.9 million recorded the previous month.
As tech stocks opened lower on Wednesday, bond rates increased, following a pattern from the day before.
The benchmark S&P 500 (\GSPC) declined by around 0.5%, while the Dow Jones Industrial Average (\DJI) dipped by 0.3%. Following a brutal day in which tech companies lost about 1.6% of their value, the Nasdaq Composite (^IXIC) fell by about 0.7%.
Bond prices declined for a fourth day in a row, which caused the 10-year Treasury yield (^TNX) to rise to about 4%.
The actions were taken after the Nasdaq had one of its worst starts to the year since 1972 on Tuesday.