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Nasdaq 100 Falls 1.5% as Stock Rally Hits a Wall: Markets Wrap

March 8, 2024

(Bloomberg) — Stocks retreated after a rally that drove the market to multiple records this year, with traders weighing mixed jobs data.

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The S&P 500 erased gains amid weakness in its most-influential group: technology. Warnings about a consolidation have surfaced after the benchmark gauge’s 35% surge since the start of last year. The tech-heavy Nasdaq 100 fell 1.5%. Nvidia Corp. halted a six-day rally, Tesla Inc. extended this week’s slide to 13% and Broadcom Inc. sank on soft chip sales.

“The issue again is that across many levels we are seeing both overbought/extended conditions alongside notable divergences between price action and momentum,” said Dan Wantrobski at Janney Montgomery Scott. “This very much creates vulnerability to a pullback in the coming weeks/months.”

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A report Friday showed the economy continued to add jobs — without spurring a surge in wages, which could hinder the disinflationary process. The figures revived hopes the Federal Reserve will be able to achieve a soft landing, allowing officials to start easing policy this year, but without running the risk of doing that too soon.

“The report didn’t necessarily amount to an ‘all-clear’ signal for the Fed, but there also didn’t appear to be anything in it that would derail its plan to cut rates,” said Chris Larkin at E*Trade from Morgan Stanley.

Treasury two-year yields fell three basis points to 4.47%, with traders almost fully pricing in a quarter-point Fed cut in June. The dollar was set for its longest losing streak since October. Gold hit a fresh peak. Bitcoin briefly touched $70,000.

The US jobless rate climbed to a two-year high in February even as hiring remained healthy, pointing to a cooler yet resilient laboWhile bulls argue that its valuation based on future earnings growth is relatively cheap, some potential investors may balk at the price.r market.

Nonfarm payrolls advanced 275,000 last month following a combined 167,000 downward revision to the prior two months. The unemployment rate rose to 3.9% and wage gains slowed.

The report was seen as being “all over the place” by Seema Shah at Principal Asset Management and several other market observers. Nonetheless, Shah sees the broad figures as somewhat market positive.

“If the economy can continue to add jobs, without triggering a resurgence in wage growth, the Fed will achieve its soft landing,” she noted.

In other words, this report confirms that the labor market is strong — but not overheating — which means the Fed is still on track for rate cuts this year, says Sonu Varghese at Carson Group.

“Labor is rolling, and wage inflation is rolling over — the Fed is threading the needle on its dual mandate,” said Jamie Cox at Harris Financial Group. “No one expected this result, but it’s happening.”

Swap contracts that predict the Fed’s decisions repriced to lower rate levels, implying traders expect close to 100 basis points of Fed easing by year-end. Last month, these contracts briefly priced in less than 75 basis points of easing this year, down from more than 150 basis points seen early in 2024.

To Gina Bolvin at Bolvin Wealth Management Group, the fact that unemployment ticked up was the biggest takeaway of Friday’s numbers. She’s among those betting the odds of a rate cut in June are increasing as the Fed would become worried if unemployment reached 4%.

“If we are genuinely seeing the unemployment rate having troughed and moving higher and wage growth slowing, then it obviously pushes the door for rate cuts open wider,” said Charles Hepworth at GAM Investments.

Fed Chair Jerome Powell, testifying this week before lawmakers, said he believed the labor market was “coming into better balance between supply and demand.” He also suggested the central bank is getting close to the confidence it needs to start lowering interest rates.

Ian Lyngen at BMO Capital Markets says soft wage figures were notable.

“If nothing else, this update on wage inflation reflects Powell’s messaging that the first cut is nearing,” he noted.

About $4.4 billion was pulled from tech funds in the week through March 6, Bank of America Corp. strategists led by Michael Hartnett wrote in a note, citing EPFR Global data. The outflows come as Apple Inc. shares entered a technical correction this month, amid concerns about the firm’s slumping iPhone sales and regulatory pressures.

Hartnett — who has taken a more neutral tone on stocks this year after remaining bearish in 2023 — said equity markets are showing “abnormal gains” in “abnormal times.” That’s left positioning “stretched and extended” ahead of expectations for an eventual rate cut by the Fed, he wrote in a note.

Nvidia, the poster child of the artificial-intelligence frenzy that has powered the bull market, lost traction on Friday. But it’s scorching rally this year has sent it well above the level where it last split its shares. Some see the AI giant well placed to do so again.

The company last announced a four-for-one stock split in May 2021, when it was trading at about $600 per share. The stock topped $900 earlier this week. The reasoning Nvidia gave for its 2021 split was “to make stock ownership more accessible to investors and employees,” according to a statement.

To be sure, Nvidia hasn’t made any indication that it would split its shares anytime soon.

Corporate Highlights:

A United Airlines Holdings Inc. aircraft ran off the taxiway into a grassy area after landing at Houston on Friday, marking the third headline-grabbing incident this week involving the carrier’s Boeing Co. planes.
Taiwan Semiconductor Manufacturing Co. is set to win more than $5 billion in federal grants to support a chipmaking project in Arizona, according to people familiar with the matter, in what would mark a major milestone in President Joe Biden’s effort to revitalize American semiconductor manufacturing.
Eli Lilly & Co.’s Alzheimer’s disease drug donanemab faces further delays in gaining US approval, with regulators planning to hold a hearing of external advisers to explore how safe the therapy is and how well it works.
Gap Inc. reported fourth-quarter earnings that exceeded expectations, a sign that efforts to turn the storied apparel retailer around are bearing fruit.
Huawei Technologies Co. and its partner Semiconductor Manufacturing International Corp. relied on US technology to produce an advanced chip in China last year, according to people with knowledge of the matter.
Novo Nordisk A/S expects the price of its blockbuster weight loss drug Wegovy to drop as more patients get access to the treatment via insurers and health-care systems, paving the way for broader use, Chief Executive Officer Lars Fruergaard Jorgensen said.