Tech Stocks Sputter as Traders Consider July Hike: Markets Wrap

A drop in tech shares drove US stocks lower, while Treasuries retreated after a surprise Bank of Canada rate increase fueled bets the Federal Reserve is not done with its own tightening.

(Bloomberg) — A drop in tech shares drove US stocks lower, while Treasuries retreated after a surprise Bank of Canada rate increase fueled bets the Federal Reserve is not done with its own tightening.

The Nasdaq 100 fell 1.8%, with the likes of Alphabet Inc. and Microsoft Corp. off at least 3%. It was the first drop of the past five sessions for the technology-heavy gauge. Megacap tech companies had powered the S&P 500 to the brink of a bull market before Wednesday’s pullback. The small-cap Russell 2000 added 1.8%, climbing for a second day after weeks of underperformance.

Yields on the policy-sensitive two-year rose to 4.56% as traders drove up wagers for a quarter point hike in US interest rates by July.

“You could see a little bit of a pullback because of the froth in the market,” Seema Shah, chief global strategist at Principal Asset Management, told Bloomberg Television. “If you don’t get a recession sooner, the later it is, the harder it becomes. You want to get this out of the way.”

Expectations of higher interest rates for longer, in order to combat inflation, are weighing on the tech sector. Policy decisions are due from the Federal Reserve and the European Central Bank next week, with the Fed signaling it may pause rate hikes in June before resuming them later.

“In marked contrast to the Fed, the Bank of Canada seems comfortable going into a meeting without its rate decision presignaled to the market,” said Deutsche Bank strategist Alan Ruskin.

He expects a “hawkish hold” as the more likely decision from the US central bank. “In part because of the meeting’s timing, coming both before the May labor market data, and, the Federal Reserve’s June FOMC, that favors a ‘skip’ decision,” he wrote in a note to clients.

Read more: Treasury Yields Nudging Higher Shows Fed in Pause-and-Hike Mode

Bridgewater Associates’ billionaire founder Ray Dalio said while interest rates won’t go much higher, the economy will get worse.

“We are at the beginning of a late, big-cycle debt crisis when you are producing too much debt and have a shortage of buyers,” Dalio said from the Bloomberg Invest conference in New York.