U.S. stocks fall for a second day as Nasdaq extends sell-off after 10-year Treasury yield eyes 4% ahead of Fed minutes

What’s driving markets

U.S. stocks retreated further on Wednesday with investors cautious amid concerns the previous year-end rally came too far too fast and growing skepticism about the chance of interest-rate cuts by the Federal Reserve in 2024.

“Financial markets experienced a jittery start in 2024, juxtaposed against the backdrop of a robust pan-markets year-end rally,” said Nigel Green, CEO of the deVere Group. “This oscillation in market sentiment, driven by various factors including tensions in the Red Sea — a key global trade route — serves as a stark reminder that investors must avoid complacency in the face of uncertainty.”

The tech-heavy Nasdaq Composite surged 43% last year, with a large chunk of that coming in the last two months, as investors made bets that easing inflation will allow the Fed to cut borrowing costs swiftly in 2024. Hopes that companies like Microsoft
MSFT,
-0.04%
and Nvidia
NVDA,
-0.97%
will benefit from AI adoption also powered the rally. However, the first trading day of the year just saw the Nasdaq shed 1.6%, its biggest drop in more than two months, and the broader S&P 500 fall 0.6%.

A downgrade of Apple
AAPL,
-1.19%,
the market’s biggest constituent, from neutral to underweight by Barclays, even worsened the market sentiment, particularly as it touched a nerve that some big-tech valuations appeared stretched and the market looked overbought following a nine-week winning streak.

Investors remained wary of a move higher in Treasury yields, which is continuing on Wednesday, with the 10-year note
BX:TMUBMUSD10Y
up to 3.975% after trading around 3.80% last week.

See: How December Fed minutes could shake up investors’ rate-cut expectations

Investors are turning their focus to the minutes of the Fed’s last meeting Wednesday, which will be released at 2 p.m. Eastern, for clues on the central bank’s interest-rate path in 2024.

“Traders will want to focus on just how cursory or intense the discussion was about cutting the policy rate,” said Thierry Wizman, global FX and interest rates strategist at Macquarie. He expects investors to feel “a bit of disappointment” with Wednesday’s minutes as the rate cuts would not be imminent.

“The Fed has first to move to a neutral policy bias, then to an easing bias, before cutting the policy rate,” he wrote in a Wednesday note.

In U.S. economic updates, job openings in the U.S. dipped to a 32-month low of 8.8 million in November from a revised 8.9 million in the prior month, the U.S. Bureau of Labor Statistics said in the JOLTS report on Wednesday. That’s seen as another sign that a prolonged hiring boom is fading in response to higher interest rates.

Meanwhile, the December ISM manufacturing report showed U.S. economic activity in the manufacturing sector contracted in December for the 14th consecutive month, according to the Institute for Supply Management. The U.S. manufacturing PMI rose to 47.4 in December, after being unchanged at 46.7 for two straight months. Any number below 50% reflects a shrinking economy.

Companies in focus

• Shares of Apple Inc. were slumping for a second straight day Wednesday, down 1% after suffering its biggest drop in 4 months following Barclay’s downgrade.

• Moderna Inc.’s stock
  MRNA,
  -0.83%
  was off 2% after leading the S&P 500 index gainers in the previous session, as Oppenheimer upgraded the stock to the equivalent of buy and said it expects the biotech to have five products approved by 2026.

• Tesla Inc. 
  TSLA,
  -3.44%
  was down 3.9% on Wednesday, putting shares of the electric-vehicle company on track for their fourth-straight down day, after the firm reported fourth-quarter deliveries that beat expectations, but was surpassed as the EV-selling leader by China’s BYD Co.