Stock Losses Deepen as Fed Fears Unsettle Traders: Markets Wrap

Tiffany Wilding, economist at Pacific Investment Management Co. (Pimco), says the labor market is slowing but not falling off of a cliff. Speaking on "Bloomberg Surveillance," Wilding says the Federal Reserve has room to cut rates at least one more time amid the potential for more job losses. Bloomberg

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(Bloomberg) — The selloff in US stocks extended into Friday as fears of a hawkish pivot by the Federal Reserve fueled a retreat from risky assets. UK markets slid amid fresh uncertainty over Britain’s fiscal outlook.

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Technology stocks were set to be at the forefront of the decline again, with Nasdaq 100 futures slipping 0.5%. The gauge tumbled more than 2% in the previous session as mounting doubts over an interest-rate cut next month stirred fresh jitters about stretched valuations. Bitcoin sank to a six-month low. The S&P 500 was on course for its first back-to-back weekly loss since June.

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UK gilts sold off after Chancellor of the Exchequer Rachel Reeves scrapped plans to raise income tax rates in the coming budget, prompting questions over how she would offset the revenue shortfall. 

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The move eased after people familiar said the decision reflected improved economic forecasts, though 10-year yields remained 8 basis points higher at 4.52%. The pound erased November’s gains while the FTSE 100 headed for its biggest drop since April.

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Traders slashed the odds of a December US rate cut to below 50% after a string of Fed officials voiced skepticism about the need for a third straight move, citing the economy’s resilience and lingering uncertainty over inflation. The question remains how the majority of policymakers are leaning, with several still uneasy about signs of labor-market weakness.

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Money markets had all but priced in a quarter-point reduction less than a month ago. Attention now turns to comments from three Fed officials due to speak Friday, including voting member Jeffrey Schmid. Traders also await a schedule for the release of economic data delayed by the US shutdown.

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Meanwhile, strategists pointed to data showing economic activity in China cooled more than expected at the start of the fourth quarter, with an unprecedented slump in investment and slower industrial growth adding to the cautious tone.

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“The nervousness is palpable on markets and it stems from different corners,” said Arnaud Girod, head of economics and cross-asset strategy at Kepler Cheuvreux in Paris. “Any pushback from the Fed on interest rate cuts is bad news. If the Fed hasn’t enough data, they are likely not to cut.”

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Stocks tied to the artificial-intelligence trade, which propelled the S&P 500 to record highs this year, extended losses in premarket trading. Chip-equipment maker Applied Materials Inc. fell 5% after reporting a sales decline. Nvidia Corp. slipped about 1%, while Tesla Inc. was on track for a fourth straight day of losses. The Cboe Volatility Index climbed above 21.

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A rotation from tech into more defensive stocks has helped the S&P 500 limit losses to just over 2% since its last record high toward the end of October, while the Nasdaq 100 has dropped nearly twice as much.