(Bloomberg) — U.S. stocks tumbled after a lackluster $42 billion bond sale, highlighting the fragility of a stock market recovery after historic volatility.
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The S&P 500 erased gains after surging nearly 2% on a dovish signal from the Bank of Japan.Investors shyed away from a 10-year Treasury auction despite a pre-sale sell-off as weaker-than-expected demand signaled that the recent rally may have run its course.Treasuries also came under pressure as 17 highly rated issuers rushed to sell bonds on the busiest day since February.Meta Platforms Inc. kicked off the flurry of deals with a $10.5 billion offering.
Nationwide’s Mark Hackett said recent events had been a “master class” in showing how emotions can dictate market movements, particularly when market sentiment and positioning are almost universally positive.
“Equities remain fragile,” said Fawad Razakzada of City Index and Forex.com. “More evidence of a bottom is needed to reinvigorate bulls. Overall, sentiment remains cautious and not many are confident buying into the latest dip, especially with the US CPI looming next week.”
The S&P 500 is trading near 5,220. Nvidia led the decline among large caps. Supermicro Computer slumped on disappointing earnings. Airbnb fell on weak outlook. Micron Technology is resuming its share buyback program.
The yield on the 10-year Treasury note rose 7 basis points to 3.97%.The Japanese yen fell 2%.The Mexican peso led emerging market gains, easing pressure on a currency that had been hit as investors abandoned riskier yen-denominated assets.
Despite the correction, JPMorgan Chase & Co. strategists say there’s little evidence that stocks have entered oversold territory, as they did in October 2023, for example.
“Our calculations suggest that stocks would need to fall another 8% from here for global equity allocations to return to average post-2015 levels,” Nikolaos Panigirtzoglou and colleagues wrote in a note on Wednesday.
Stocks’ gains at the end of last week were fueled by relief in Japan following the big swings in Japanese stocks over the past week. Expectations that the Federal Reserve will cut interest rates more aggressively also boosted stock prices, prompting traders to quickly unwind once-popular yen-denominated carry trades that included excess holdings of U.S. technology stocks.
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The global unwinding of carry trades triggered by the Bank of Japan’s unexpectedly more hawkish stance last week resulted in a noticeable rise in the yen, but has since eased considerably, according to Quincy Krosby of LPL Financial.
“The slowdown in monetary easing has caused a sigh of relief in markets globally, but the yen-dollar relationship is also an important factor in the carry trade calculation,” she noted. “If the dollar weakens due to market perception that the Fed will soon begin an easing cycle, it will support a stronger yen, which is bad for the carry trade.”
Recent weak U.S. data has sent markets tumbling, but it’s too early to suggest the economy is heading for a downturn, according to the Franklin Templeton Institute. Taking in some profits after Treasury bonds surge “makes sense,” writes Steven Dover.
Strategists at Goldman Sachs Group Inc. said Treasury yields are probably too low unless there is “broader evidence of a sharp deterioration in either the labor market or market functioning.”
“Any meaningful upside from here would be expected if one (or both) of these risks materialized,” wrote William Marshall and Bill Zhu. “A more moderate outcome would likely see yields move relatively in line with forwards and above current levels across the curve.”
Treasury yields are now well above Monday’s lows, reflecting a calm after financial market turmoil earlier this week, according to Will Comparnole of FHN Financial.
“However, it is too early to declare the turmoil over and a weak August session with relatively little data for the rest of the week could see Treasury yields move lower again,” he said.
Company Highlights:
The Walt Disney Co. reported mixed third-quarter results on Wednesday, as weakness at its famous theme parks offset a first-time gain in streaming.
Shopify Inc. reported second-quarter revenue and profit that beat analysts’ expectations, showing the Canadian e-commerce company is weathering cautious consumer spending.
CVS Health Inc. cut its 2024 profit outlook for the third consecutive quarter and announced cost-cutting measures aimed at saving $2 billion over several years as health care costs continue to soar.
Ride-hailing company Lyft Inc. released second-quarter bookings, outlining guidance that fell short of Wall Street expectations.
Boeing is redesigning a part that exploded on a nearly new 737 MAX 9 plane during flight in January as the company seeks to learn lessons from the accident that has plunged the company into crisis.
Novo Nordisk said sales of its blockbuster weight-loss drug Wegovi had disappointing expectations, a rare setback for the Danish drugmaker as it braces for increased competition in a fast-growing market.
Rivian Automotive is keeping its full-year vehicle production targets unchanged from last year, but its CEO now expects production to increase in 2025 despite the looming plant closures.
Brookfield Asset Management said assets under management rose to a record high of about $1 trillion and profit rose from a year ago but fell short of analysts’ expectations.
Major events this week:
German industrial production on Thursday
US initial jobless claims reported Thursday
Fed President Thomas Barkin to speak Thursday
China producer price index, consumer price index, Friday
Some of the key market developments:
stock
The S&P 500 was down 0.3% as of 3:14 p.m. New York time.
The Nasdaq 100 fell 0.5%.
The Dow Jones Industrial Average fell 0.4%.
The MSCI World Index was little changed
The Bloomberg Magnificent 7 Total Return Index fell 0.7%.
The Russell 2000 Index fell 1%.
currency
The Bloomberg Dollar Spot Index rose 0.1%.
The euro was little changed at $1.0924
The British pound was little changed at 1.2694 to the dollar
The Japanese yen fell 1.8% to 146.94 yen to the dollar.
Cryptocurrency
Bitcoin fell 2.7% to $55,022.94.
Ether fell 5.5% to $2,353.41.
Bonds
The yield on the 10-year Treasury note rose 7 basis points to 3.97%.
German 10-year government bond yields rose 7 basis points to 2.27%.
UK 10-year government bond yields rose 3 basis points to 3.95%.
merchandise
This story was produced with assistance from Bloomberg Automation.
–With assistance from Robert Brand, Sujata Rao, and Winnie Hsu.
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