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US stocks steadied on Friday, recovering from a sharp drop earlier in the day, as concerns about highly valued tech companies and the path of interest rates buffeted Wall Street.
The tech-heavy Nasdaq Composite rebounded to close up 0.1 per cent after dropping 1.6 per cent early in the trading session, following a 2.3 per cent fall on Thursday. The S&P 500 ended the day flat, following losses for European and Asian markets.
The choppy trading followed a sell-off led by tech companies, as a growing number of investors warn that market valuations have become unhinged from fundamentals.
“This set-up — markets close to all-time highs, high concentration, high valuations — makes people particularly concerned about any negative newsflow,” said Marija Veitmane, global head of equity strategy at State Street Markets, pointing to comments from the White House on Thursday that some important inflation and jobs data might not be released, even with the end to the US government shutdown.
The Bureau of Labor Statistics on Friday said it would release September jobs data on November 20.
“Sharp bouts of volatility are more likely at very elevated levels,” Veitmane said, adding: “It’s November, people have had a very good year and want to protect their profits.”
US central bankers this week have also cast doubt on the prospects for a December interest rate cut, adding to investor nerves.
Kansas City Fed president Jeff Schmid on Friday hinted that US interest rates might remain on hold. Inflation “remains too high” and the labour market “though cooling, remains largely in balance”, he said.
Susan Collins, president of the Boston Fed, on Wednesday said there was “a relatively high bar for additional easing in the near term”, and Minneapolis Fed president Neel Kashkari said on Thursday that he did not support the Fed’s last rate cut and that he would need more data to make the case for a December cut.
“The hawkish Fed speak isn’t helping” markets this week, said Giles Parkinson, head of equities at TrinityBridge, adding that the heavy selling in tech stocks “could be [investors] locking in gains”.
Three weeks ago, investors were fully pricing in a quarter-point Fed rate cut next month; now, the decision is on a knife-edge, with only a 50 per cent probability priced in futures markets.
The Stoxx Europe 600 index was 1 per cent lower on Friday. In London, the FTSE 100 was down 1.1 per cent, while Germany’s Dax fell 0.7 per cent.
Earlier in the day, South Korea’s Kospi slipped 3.8 per cent. Japan’s tech-heavy Nikkei 225 index and Taiwan’s Taiex both fell 1.8 per cent. China’s CSI 300 fell 1.6 per cent and Hong Kong’s Hang Seng dropped 1.9 per cent.
The sell-off was sharpest in stocks related to AI. SoftBank and SK Hynix fell more than 6 per cent, while Samsung Electronics shed 5 per cent. Taiwan Semiconductor Manufacturing Company dropped 2 per cent.
“Investors are becoming more selective of how they think about AI,” said Jason Lui, head of Asia-Pacific equity and derivative strategy at BNP Paribas.
US government bonds slipped as stocks recovered. The yield on the 10-year US Treasury moved 0.04 percentage points higher, to 4.15 per cent. Bond yields move inversely to prices.
In a sign of growing apprehension over the AI rally, Michael Burry, famous for shorting the US housing market during the 2008 financial crisis, announced on Thursday that he would close his hedge fund Scion Asset Management.
“My estimation of value in securities is not now, and has not been for some time, in sync with the markets,” he said in a letter to investors, dated October 27.
The price of bitcoin slid 5.3 per cent on Friday, taking it to just above $94,000 a token.
