As heavyweight technology equities saw a steep selloff, a record-breaking advance in global stocks lost steam.
As risk sentiment soured due to a stock rotation that hurt Wall Street's megacap tech titans, the majority of Asian gauges declined. After plunging 1.4% on Tuesday, contracts for the Nasdaq 100 index fell 0.3%, the second-worst decrease since the tariff shock in April. Taiwan Semiconductor Manufacturing Co. and SoftBank Corp. led the 0.5% falls in MSCI's regional stock gauge.
Following a three basis point decline in 10-year rates to 4.31%, treasuries stabilized in early Asian trading. Oil recovered some of its losses from the previous session, rising 0.4%. A dollar gauge continued to rise for a third day.
With mounting concerns that the gain since April has gone too far and too soon, investors reduced their holdings in technology firms, which have long led the market. This week, as attention shifts to Jackson Hole, Wyoming, where Federal Reserve Chair Jerome Powell is scheduled to speak on Friday, traders will be putting their bets on a September cut to the test.
Kyle Rodda, a senior market analyst at Melbourne-based Capital.com, stated, "Wall Street finally hit an air pocket overnight as the US summer lull thins liquidity and weakens the bid for risk assets, especially high flying tech stocks." "A certain amount of anxiety is also present before the Jackson Hole symposium."
The rebound that has lifted the so-called Magnificent Seven equities from their April lows appears to be stretched, according to strategists at Bank of America Corp. led by Michael Hartnett. This year, Hartnett has issued numerous warnings about the bubble risk in US stocks.
Nicholas Bohnsack of Strategas stated, "When the markets are rising, it is always easier." "We are becoming more concerned that traditional risk assets (stocks and bonds) seem to be perfectly priced, but it is hard to find flaws in the bull case; the path of least resistance is probably higher."
In the meantime, US Homeland Security Secretary Kristi Noem said the government will increase its inspection of steel, copper, lithium, and other commodities imported from China in order to impose a ban on products that are purportedly manufactured in China's Xinjiang province using forced labor.
As he reiterated plans to increase duties on the South Asian country, US Treasury Secretary Scott Bessent also asserted that some of the "richest families in India" profited from the purchase of Russian crude oil.
As the Treasury market views a quarter-point rate decrease next month as all but guaranteed and at least one more by year-end, traders are preparing for Powell's speech.
Investors are awaiting Powell's confirmation of market pricing or his rebuttal that fresh information that comes in before the next policy meeting could alter the situation. Additionally, they are searching for hints on the longer-term course of Fed cuts into the upcoming year.
The argument for lower rates seemed to be settled a few weeks ago when the most recent jobs report showed a decline in hiring. Then, US wholesale prices saw the biggest increase in three years, which fueled the fear of tariff-driven inflation that has held Fed policymakers in check so far this year.
Ian Lyngen of BMO Capital Markets stated, "We'll argue that the biggest risk for Treasuries is if the Fed chief chooses to throw cold water on the widely anticipated September rate cut."
Although this is hardly Lyngen's worst-case scenario, he claims that if Powell fails to exhibit the kind of dovishness currently expected, the front end of the curve could be subject to a correction.
President Donald Trump repeated his criticism of Powell saying the Fed head is hurting the housing market by not lowering rates.
Trump wrote on Truth Social, "Every indication points to a significant rate cut, and there is no inflation."
As the US president steps up his attempts to stop the war in Ukraine, Trump urged Vladimir Putin of Russia and Volodymyr Zelenskiy of Ukraine to exhibit some "flexibility" on the geopolitical front. He also encouraged the two leaders to meet bilaterally.
"Traders are still cautious, even though it seems like the way to peace is at least a little clearer," said Fawad Razaqzada of City Index and Forex.com. "And with good reason—the most difficult discussions, specifically those pertaining to territory, are still to come."
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