(Bloomberg) --Stocks retreated, while Treasury yields rose alongside the dollar after the latest reading on jobless claims just reinforced the case for the Federal Reserve's higher-for-longer stance.
The S&P 500 dropped below 4,400 and the Nasdaq 100 lost about 1%. Cisco Systems Inc. slipped after agreeing to buy cybersecurity company Splunk Inc. in a $28 billion deal. Broadcom Inc. sank on a report that Alphabet Inc.'s Google is considering dropping the company as a supplier for artificial intelligence chips as soon as 2027. FedEx Corp., a proxy for global growth, rose after a bullish outlook.
Ten-year US yields climbed toward the highest since October 2007. The dollar briefly hit the strongest in six months, rising against all of its developed-market peers — except the yen — with the Japanese currency inching closer to the 150 level that some analysts consider to be a trigger for intervention. The pound fell after the Bank of England kept rates unchanged for the first time in almost two years. Germany's benchmark yields hit a 12-year high.
"There's a post-Fed hangover in the market this morning and dark clouds over Wall Street," according to strategists at Bespoke Investment Group. "After the market followed the recent Fed-day script nearly step for step yesterday, international markets continued the downward trend overnight, and US markets are picking up right where they left off yesterday."
To Matt Maley at Miller Tabak + Co., while the Fed signaled it will indeed keep rates higher for longer, the central bank "did seem to push that narrative to an even greater degree than expected" — by raising the growth outlook and where officials expect the Fed funds rate to be trading at future dates in a significant manner.
Applications for US unemployment benefits fell to the lowest level since January last week, indicating a healthy labor market that continues to support the economy. Initial jobless claims dropped to 201,000. The median estimate in a Bloomberg survey of economists called for 225,000 applications.
"On net, it was a solid read from one of the closest to 'real time' employment data investors are afforded," said Ian Lyngen at BMO Capital Markets. "It also marginally increases the chances the Fed hikes in November and certainly reinforces the Fed's messaging regarding avoiding cuts as long as possible in 2024."
With most of the Fed board supporting an additional hike in 2023, lower-than-expected jobless claims is the type of data that could make that a reality, according to Mike Loewengart at Morgan Stanley Global Investment Office.
"The Fed has been waiting for the labor market to loosen up, and so far it hasn't happened," Loewengart added. "But even if they don't hike again, continued strength in the jobs market will likely translate into rates remaining higher for longer."
Bond traders are bracing for Treasury yields to keep pushing higher after the Fed signaled it's likely to hold interest rates at lofty levels well into next year.
Fifty-eight percent of the 172 respondents in the Bloomberg Markets Live Pulse survey conducted after the Fed's decision said that 2-year Treasury yields have yet to peak, while a plurality expect 10-year yields to climb over 4.5%. Two-year rates rose above 5.19% Thursday to a fresh 17-year high, while 30-year yields climbed to 4.48%, a level last seen in 2011.
Former Fed Bank of St. Louis President James Bullard said the central bank may need to raise rates further and hold them higher to guard against the risk of a reacceleration of inflation.
Corporate Highlights
Rupert Murdoch is stepping down as chairman of the boards of Fox Corp. and News Corp., and will become chairman emeritus of each company.
Comcast Corp.'s NBCUniversal has reached a five-year deal to air WWE's Friday Night SmackDown, taking over broadcast rights that have belonged to Fox since 2019.
Darden Restaurants Inc. is seeing more "softness" among households with incomes above $125,000 compared to last year, Chief Executive Officer Rick Cardenas said.
Key events this week:
- China's Bund Summit, Friday
- Japan CPI, PMIs, Friday
- Bank of Japan rate decision, Friday
- Eurozone S&P Global Eurozone PMIs, Friday
- US S&P Global Manufacturing PMI, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.7% as of 9:31 a.m. New York time
- The Nasdaq 100 fell 0.9%
- The Dow Jones Industrial Average fell 0.4%
- The Stoxx Europe 600 fell 1%
- The MSCI World index fell 1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.1% to $1.0649
- The British pound fell 0.6% to $1.2276
- The Japanese yen rose 0.3% to 147.93 per dollar
Cryptocurrencies
- Bitcoin fell 2.1% to $26,522.34
- Ether fell 2.6% to $1,581.82
Bonds
- The yield on 10-year Treasuries advanced six basis points to 4.47%
- Germany's 10-year yield advanced six basis points to 2.76%
- Britain's 10-year yield advanced 10 basis points to 4.32%
Commodities
- West Texas Intermediate crude rose 1.3% to $90.79 a barrel
- Gold futures fell 1.6% to $1,936.20 an ounce
- This story was produced with the assistance of Bloomberg Automation.
© 2023 Bloomberg L.P.
