(Bloomberg) -- Heavy selling resumed in Wall Street’s largest technology companies, with American shares snapping a two-day rebound amid signs investors are paring exposure in US risk assets. European stocks gained.
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One day before a Federal Reserve decision that will be parsed for an assessment on how President Donald Trump’s trade policies are affecting the economy, US equities slid, with megacaps hitting the lowest since September. Nvidia Corp. fell 3% despite plans to develop 6G networks and work with General Motors Co. on self-driving cars. Data showing hot import prices didn’t help market sentiment either. Treasuries rose after a solid $13 billion US sale of 20-year bonds. Gold climbed to a fresh record.
Investors have slashed holdings of US equities by the most on record while cash levels jumped, according to Bank of America Corp.’s latest survey. Just about a month ago, stocks were making new highs on expectations that Trump administration policies would stoke growth. Those assumptions may now be under threat if the economy slows and big bets on artificial intelligence don’t pay off.
“Because investors’ favorite stocks have suffered so much, it’s likely impacting investor sentiment disproportionately,” said Bret Kenwell at eToro. “Historically, similar levels in sentiment have coincided with at least a short-term bottom in US stocks, although it’s not clear that we’ve seen a capitulatory type move that generally marks the bottom.”
Following a rapid stock selloff, talks about a “Fed put” to rescue investors have risen, but anyone expecting some reassurance — at least at the March meeting — will be disappointed, according to Anna Wong at Bloomberg Economics.
“Sticky inflation and higher inflation expectations raise the bar for Fed cuts,” said Lauren Goodwin at New York Life Investments. “The Fed is likely to need to see a stronger deterioration in financial conditions and the economic growth outlook before pre-emptively cutting with inflation figures so strong.”
Using 2018’s insurance cuts as a guideline, Goodwin said an equity market valuation decline of at least 20% would be required to push the Fed to act.
The S&P 500 fell 1.1%. The Nasdaq 100 slid 1.7%. The Dow Jones Industrial Average lost 0.7%.
The yield on 10-year Treasuries dropped three basis points to 4.27%. The dollar fluctuated.
With Fed officials expected to hold rates steady on Wednesday, the market will focus on officials’ updated economic projections and Chair Jerome Powell’s press conference for clues about the path ahead. For now, policymakers have signaled they’re in a wait-and-see mode as they seek further progress on inflation and greater clarity on the economic impact of Trump’s policies.
“The Fed likely holds tight here,” said Scott Helfstein at Global X. “Fed Chair Powell has repeatedly said that the risks to price stability and full employment are balanced. That is likely still true, but risks to both are rising. This is not time to sell and go away, but perhaps time to review long-term strategy against near-term volatility.”
Treasury Secretary Scott Bessent said that the underlying economy is healthy and there’s no reason for the US to see a recession, while rejecting the idea of assuring there cannot be a downturn.
“I can’t guarantee anything,” Bessent said in an interview Tuesday with Fox Business’ Maria Bartiromo, dismissing any question about assuring there won’t be one as “silly.”
“The ongoing trade tensions and tariff implementations under President Trump’s administration have introduced significant uncertainty,” said Jay Woods at Freedom Capital Markets. “Investors are eager to understand how these policies are influencing the Fed’s economic outlook, especially concerning inflation and growth projections.”
A survey conducted by 22V Research shows investors are watching the Fed more closely than the prior three meetings.
“Our survey respondents lean risk-off vs risk-on (34% vs 27%, respectively). We also asked what people think the other respondents expect, and more investors expect a risk-on reaction than people thought,” said Dennis DeBusschere, founder of 22V.
The tally also showed there is no consensus on whether Powell will express concern over the recent moves higher in consumer inflation expectations.
“Our survey respondents think the current tariff environment will still lead to 50bps of cuts in 2025, but the skew has shifted to more cuts. The last time we asked was pre-tariff announcements and equity drawdowns,” DeBusschere noted.
As the S&P 500 slid into a correction last week, Bank of America Corp. clients bought US equities — with the sectors they favored indicating they weren’t betting on an economic contraction.
There were “bigger inflows into cyclical than defensive sectors in aggregate, suggesting that clients weren’t positioning for recession,” quantitative strategist Jill Carey Hall wrote in a research note.
Despite all the volatility of this year, the S&P 500’s first “all-or-nothing” day didn’t occur until the end of last week, according to Bespoke Investment Group strategists. Friday and Monday were just the 11th time since 1990 that the S&P 500 had back-to-back daily breadth readings of +400, they said.
Following the 10 prior occurrences, the S&P 500 traded down over the next week 70% of the time — but was higher three months later 80% of the time and higher six and twelve months later 90% of the time.
Even after the 10% correction in US large caps, earnings expectations embedded in stock prices are extremely high — at levels achieved only four times since the tech bubble 25 years ago — and may remain a challenge to equities, according to Gina Martin Adams and Michael Casper at Bloomberg Intelligence.
“Consensus has taken down estimates for the first half but is still holding onto forecasts for a robust second-half recovery that doesn’t appear likely without a major near-term change at the Federal Reserve or with taxes,” they said.
In other corporate news, Alphabet Inc. agreed to acquire cybersecurity firm Wiz Inc. for $32 billion in cash. Apple Inc. lost its fight at Germany’s top civil court to overturn a regulator’s decision to put it under tighter antitrust scrutiny alongside other tech giants. Sarepta Therapeutics Inc. sank after a teenage boy treated with its gene therapy died of acute liver failure.
Key events this week:
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Bank of Japan rate decision, Wednesday
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Federal Reserve rate decision, Wednesday
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China loan prime rates, Thursday
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Bank of England rate decision, Thursday
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US Philadelphia Fed factory index, jobless claims, existing home sales, Thursday
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Eurozone consumer confidence, Friday
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Fed’s John Williams speaks, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 fell 1.1% as of 2:20 p.m. New York time
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The Nasdaq 100 fell 1.7%
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The Dow Jones Industrial Average fell 0.7%
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The MSCI World Index fell 0.7%
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Bloomberg Magnificent 7 Total Return Index fell 2.7%
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The Russell 2000 Index fell 1%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro rose 0.2% to $1.0944
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The British pound was little changed at $1.3001
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The Japanese yen was little changed at 149.12 per dollar
Cryptocurrencies
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Bitcoin fell 2.9% to $81,550.01
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Ether fell 2.7% to $1,882.44
Bonds
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The yield on 10-year Treasuries declined three basis points to 4.27%
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Germany’s 10-year yield was little changed at 2.81%
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Britain’s 10-year yield was little changed at 4.64%
Commodities
--With assistance from Sujata Rao, Allegra Catelli, John Viljoen and Aya Wagatsuma.
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