U.S. stocks extended a slump while bonds edged higher in the aftermath of the minutes of the Federal Reserve’s last meeting.

The Nasdaq 100 fell 1.1 per cent, extending a losing streak for a fourth day — the longest in over two months — as investors continued to retreat from last year’s winning tech stocks. The S&P 500 slid 0.8 per cent while the Russell 2000 small caps gauge dropped 2.6 per cent. Tesla Inc. and semiconductor stocks slumped while crypto-tied equities floundered as Bitcoin erased most of its gains this year. 

The dollar strengthened for a fourth day, the longest run since November. 

Fed policymakers said rates could stay restrictive for longer than anticipated last month, while noting rates cuts could emerge before the year is out. Swaps traders had been factoring in a full quarter point cut to the benchmark rate by the March meeting on Friday.

Treasury yields ended the day near session lows with the rate on the 10-year reversing after climbing just above 4 per cent, the highest since mid-December, earlier in the day.

“Overall, it was a hawkish update from the Fed,” according to Ian Lyngen at BMO Capital Markets, though “the tone has apparently fallen on indifferent ears.” 

“The FOMC minutes focused on better balanced risks to growth and inflation, but policy will remain restrictive for some time,” Morgan Stanley’s Ellen Zentner wrote. “We do not think this is a Fed planning to lower interest rates anytime soon.”

Fed Chair Jerome Powell ignited a markets rally last month after indicating that policymakers had discussed lowering interest rates. His colleagues at the U.S. central bank then attempted to walk back market enthusiasm for quicker and deeper rate cuts in the days that followed.

Richmond Fed President Thomas Barkin held off on giving a forecast on when the U.S. central bank’s first rate cut would occur. “Conditions are ever evolving,” he said in prepared remarks Wednesday. “So too will our approach. So, buckle up. That’s the proper safety protocol even if you expect a soft landing.”

The Institute for Supply Management’s manufacturing gauge hit 47.4 last month, data out Wednesday showed. The index has remained below the 50 level — indicating a contraction – since late 2022. Separate data showed the number of job openings fell slightly in November from the prior month’s revised number.

“Overall, the labor market remains strong, but demand is cooling, coming into better balance with supply,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics wrote. “These data will be welcome news for policymakers and support the Fed’s view that the next move in rates will be lower, likely in Q2.”

Friday’s jobs report could cement the cooling narrative, according to ING’s James Knightley. The makeup of jobs growth is “almost as important as the payrolls number itself in determining the prospect for rate cuts in 2024,” he said.

Elsewhere, a slump in Bitcoin on Wednesday saw the cryptocurrency erase almost all gains it had made so far this year. Stocks tied to the sector slipped with MicroStrategy Inc. sliding about 8 per cent and Coinbase Global Inc. dropping roughly 3 per cent.

“The year is certainly off to a rough start, which may motivate more profit taking, after the outsized gains of last year, but the fundamentals haven’t changed, nor have earnings estimates,” according to Louis Navellier of Navellier & Associates. “There are opportunities in good stocks with attractive values being dragged down for no good reason.”

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In corporate news, Walt Disney Co.’s Chief Executive Officer, Bob Iger, was drumming up investor support as he seeks to stave off pressure from billionaire activist Nelson Peltz. Barrick Gold Corp. is sounding out some of First Quantum Minerals Ltd.’s major investors to gauge their support for a potential takeover.

Cigna Group slumped after a Wall Street Journal report it was near a deal to sell its Medicare business for US$3 billion to $4 billion. 

Key events this week:

• China Caixin services PMI, Thursday
• Eurozone S&P Global Eurozone Services PMI, Thursday
• U.S. initial jobless claims, ADP employment, Thursday
• Eurozone CPI, PPI, Friday
• U.S. nonfarm payrolls/unemployment, factory orders, ISM services index, Friday
• Richmond Fed President Tom Barkin — an FOMC voter in 2024 — speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.8 per cent as of 4:01 p.m. New York time
• The Nasdaq 100 fell 1.1 per cent
• The Dow Jones Industrial Average fell 0.8 per cent
• The MSCI World index fell 0.9 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro fell 0.2 per cent to $1.0921
• The British pound rose 0.4 per cent to $1.2664
• The Japanese yen fell 0.9 per cent to 143.24 per dollar

Cryptocurrencies

• Bitcoin fell 5.3 per cent to $42,749.04
• Ether fell 6.2 per cent to $2,219.55

Bonds

• The yield on 10-year Treasuries declined two basis points to 3.90 per cent
• Germany’s 10-year yield declined four basis points to 2.02 per cent
• Britain’s 10-year yield was little changed at 3.64 per cent

Commodities

• West Texas Intermediate crude rose 3.8 per cent to $73.02 a barrel
• Spot gold fell 0.8 per cent to $2,041.50 an ounce