NEW YORK (Reuters) -Wall Street’s main indexes pared losses after being weighed down by technology stocks earlier Friday, while Federal Reserve officials cast doubt on a potential interest rate cut in December.
Concerns about stretched AI stock valuations have triggered declines in recent weeks, putting the Nasdaq on course for its longest losing streak since April.
The Dow Jones Industrial Average fell about 0.3% in morning trading in New York, while the S&P 500 turned positive. The FTSE 100 slid more than 1%.
Expectations for a 25-point rate cut in December fell to 53% from last week’s 67%, according to CME Group’s FedWatch tool, after policy makers expressed reticence on more monetary easing.
QUOTES:
CHRISTOPHER MURPHY, CO-HEAD OF DERIVATIVES STRATEGY AT SUSQUEHANNA, PENNSYLVANIA
“Today’s sell-off was led by high beta and speculative tech, with the ARKK (ARK Innovation ETF) complex among the worst performers.
“The move was exacerbated by a sharp drop in December rate cut odds, slipping from 65% to 50%, which added pressure across growth-oriented sectors.
“Despite the volatility surge, this appears more like a temporary derisking or rotation phase ahead of the next key catalyst–NVIDIA’s upcoming earnings—which will likely dictate sentiment for AI-linked leaders and the broader market.”
BRIAN MULBERRY, SENIOR CLIENT PORTFOLIO MANAGER AT ZACKS INVESTMENT MANAGEMENT, COLORADO
“The recent volatility seems heavy right now, but over the last 30 days, the S&P 500 is still +1.2%. That said, there is a definite rotation happening as mega cap tech stocks are unwinding some of their lofty gains, and investors seem to be moving back into more value-oriented names.”
“It is a good thing to see more broadening in the market as it has been so concentrated on the AI trade for the past year. Investors are beginning to ask questions around the lofty CAPEX spending, mainly wanting to see how and when this spending will come back to the balance sheet and will it be profitable. This is the main driver of the selling pressure, the concentration of returns built up by the Mag 7 names adds to the drawdown simply because of their weightings now in the S&P 500.”
SEEMA SHAH, CHIEF GLOBAL STRATEGIST, PRINCIPAL GLOBAL INVESTORS, LONDON:
“Markets are getting a view that the labour market is slowing down. But because the Fed doesn’t have enough confidence in the alternate data, they would rather still hold.
“So you have markets that are concerned about the growth outlook. If the data is correct in the way it seems to be trending, the economy does require rate cuts.
“This is where, for the first time, the government shutdown really does have a sustained impact on the economy.
“So, we just have to see if that data is going to come through. It always makes sense for the Fed to step in ahead of time rather than waiting for the (unemployment) numbers to start moving higher.
“The lack of a Fed cut in December would be quite negative. And we would expect that the market would continue to respond quite negatively until we get an indication that a Fed rate cut is coming.
“We are overall overweight in equities and we’re still overweight U.S. equities.”
BILL FITZPATRICK, MANAGING DIRECTOR AND PORTFOLIO MANAGER AT LOGAN CAPITAL MANAGEMENT, CHICAGO:
“There’s a bit of a natural unwind in that valuations were a bit lofty in some of the big tech names, and you had a few large investors lightening up on their positions. I think it just speaks to the point that the starting point does matter and these are terrific companies, their stock price has performed very well and to get a bit of a rotation is not too surprising.
“The hope is that instead of a bubble mentality, we just get a broadening-out of some of the leadership. Some of the more stable sectors that have not participated the last couple of years are starting to gain more recognition and perhaps we’ll see some more stable sectors do well.
“Investors should be continuing to diversify their portfolio away from the one sector that has been driving the bus for so long. The message is to continue to diversify broadening-out the leadership. The timing of this sell-off or unwind is going to be too difficult to gauge.”
MATTHEW PALLAI, CHIEF INVESTMENT OFFICER AT NOMURA CAPITAL MANAGEMENT, NEW YORK:
“I don’t think this is a bubble, so to speak, either in credit or on the equity side. However, I do think there is a significant amount of liquidity that has been out there in the market and that is driving both.
“It has driven credit spreads to fairly tight levels in several but not all credit markets, and some widening is probably healthy for the market at the moment, given the fact that in the macro backdrop there’s more uncertainty now around things like unemployment and tariffs and geopolitics.
“On the equity side… markets have done well for a fairly long period of time now, and people are willing to buy the dip, and if that continues to happen over and over again we can get to levels that are pretty steamy. I think it’s healthy to have some correction from those levels, especially if it’s on the backdrop of more uncertainty in the macro environment.”
(Reporting by markets team, compiled by Lananh Nguyen; Editing by Nia Williams)
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