The widespread surge in global stocks and bonds hit a pause on Thursday as investors reevaluated the enthusiasm surrounding expectations of declining interest rates in the coming year. Shares across various regions experienced declines, contributing to the second consecutive daily drop for the MSCI All Country World Index, which had been propelled by indications of Federal Reserve rate cuts in 2024 during a nine-day winning streak. Both the S&P 500 and Nasdaq 100 witnessed a 1.5% decline on Wednesday.
Investors noted relative strength readings for U.S. stocks reaching levels typically observed before a downturn. Wall Street’s fear gauge, the VIX, traded near multi-year lows before surging on Wednesday. Additionally, a substantial zero-day options trade on the S&P 500 might have amplified the selling pressure.
Treasuries retraced lower on Thursday, moderating the gains from the previous session when they advanced across the yield curve amid stock market declines. Bonds in Australia and New Zealand rallied, catching up to the overall gains. British 10-year notes also saw an increase on Wednesday following data indicating a slowdown in UK inflation. The dollar gauge decreased during Asian trading.
Cameron Dawson, Chief Investment Officer of Newedge Wealth, highlighted concerns about the market being one-sided, describing it as an “extended” and “overbought” situation. Despite the market being in a “melt-up” period, he suggested that a pullback might occur.
Traders absorbed Wednesday’s data, revealing a notable increase in U.S. consumer confidence in December, the most substantial since early 2021. The consecutive monthly rise indicated reduced concerns about an impending recession. In separate reports, sales of existing U.S. homes in November increased from a 13-year low, and mortgage rates hit their lowest levels since June.
Additional Market Movements and News:
- Toyota Motor Corp shares saw a significant slump, the most in over 18 months, as subsidiary Daihatsu Motor Co.’s offices were raided over a safety scandal, and the automaker recalled 1 million cars in the U.S. due to manipulated collision safety tests dating back to 1989.
- Citigroup Inc. decided to exit the distressed-debt trading business, while Morgan Stanley considered allocating a portion of its balance sheet to a new private credit fund. FedEx Corp. reported diminished profits, causing its shares to drop by 12% on Wednesday, raising concerns about an economic slump.
- In commodities, oil prices fell below $74 per barrel, erasing a minor gain from the prior session. Gold steadied after a decline on Wednesday, trading close to $2,030 per ounce.
- Bitcoin steadied after reaching its highest point in over a week, with the Securities and Exchange Commission facing a Jan. 10 deadline to decide on ETF approvals.
Investors are anticipating U.S. gross domestic product data later on Thursday, along with various releases on Friday, including UK GDP, U.S. consumer sentiment, and the core personal-consumption expenditures price index (the Fed’s preferred inflation gauge).
