(Bloomberg) -- US stocks dropped after strong retail sales data and comments from at least two Federal Reserve speakers recast bets that the central bank’s policy tightening regime is nearing an end.
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The S&P 500 and the Nasdaq 100 fell after a report showed retail sales posted the biggest increase in eight months in October, outpacing estimates and indicating the economy can withstand additional Fed hikes. Target Corp.’s disappointing earnings also weighed on sentiment.
The indexes trimmed their losses after 4 p.m. in New York, when a fresh batch of earnings trickled in. Nvidia Corp. posted quarterly sales that topped analysts’ estimates while Cisco Systems Inc. gave a bullish revenue forecast.
A closely watched part of the US yield curve reached new extremes of inversion, signaling concerns that restrictive Fed policy will sap the economy.
Wednesday’s market pullback came after a hefty rally stoked by softer-than-expected US inflation data that fanned hopes the Fed may be able to slow its tempo of interest-rate hikes. While a slew of Fed officials in recent days have backed these expectations, they have also emphasized the need to keep hiking into next year.
On Wednesday, New York Fed President John Williams bruised sentiment after he said the central bank should avoid incorporating financial stability risks into its considerations. San Francisco Fed President Mary Daly, meanwhile, stressed that a pause is “off the table.”
Goldman Sachs Group Inc. now expects the Fed to boost its key rate to a range of 5% to 5.25%, up from the previous call of 4.75% to 5%.
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“The market is just trying to grasp for news and it’s prone to overcompensate for the news, whether it’s good news or bad news,” Sandi Bragar, chief client officer at Aspiriant, said by phone. “We’re just at that point in the cycle where we think there’s still the high likelihood for potential downward trajectory of stocks as we head into 2023.”
The stronger retail numbers give the Fed more room to be aggressive, as officials have consistently communicated, Oksana Aronov, alternative fixed income head of markets strategy at JPMorgan Asset Management, said on Bloomberg TV. The disparate economic data that has hit the markets in recent weeks complicates the central bank’s mandate, she said.
Earlier in the day, comments from US President Joe Biden that Ukrainian air defenses, rather than by Russia, had likely caused Tuesday’s explosion in Poland soothed fears of an escalation in military conflict. While the White House backed Poland’s call on the matter, it emphasized that Russia was ultimately to blame.
Elsewhere, European Central Bank policy makers may slow down their tempo of rate hikes, with only a 50 basis-point increase next month, according to people with knowledge of the matter.
Key events this week:
Eurozone CPI, Thursday
US housing starts, initial jobless claims, Thursday
Fed’s Neel Kashkari, Loretta Mester speak, Thursday
US Conference Board leading index, existing home sales, Friday
Some of the main moves in markets:
The S&P 500 fell 0.8% as of 4 p.m. New York time
The Nasdaq 100 fell 1.4%
The Dow Jones Industrial Average fell 0.1%
The MSCI World index rose 1.1%
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.5% to $1.0396
The British pound rose 0.4% to $1.1916
The Japanese yen fell 0.1% to 139.44 per dollar
Bitcoin fell 1.9% to $16,561.13
Ether fell 2.8% to $1,211.08
The yield on 10-year Treasuries declined nine basis points to 3.68%
Germany’s 10-year yield declined 11 basis points to 2.00%
Britain’s 10-year yield declined 15 basis points to 3.15%
West Texas Intermediate crude fell 1.7% to $85.48 a barrel
Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Vildana Hajric, Emily Graffeo and Peyton Forte.
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