U.S. stocks dropped for a fourth session as traders assessed the Federal Reserve’s path next year after central bank officials vowed to keep raising rates until they’re confident inflation is coming down meaningfully. 

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The S&P 500 closed at its lowest level in more than a month, dragged by declines in big-tech firms. The tech-heavy Nasdaq 100 slid 1.4 per cent. Treasuries fell, led by longer-dated securities, as traders speculated about the potential for a hawkish pivot from the Bank of Japan. The benchmark 10-year yield rose the most since October. The dollar wavered as investors weighed the Fed’s rate outlook ahead of fresh economic data this week. 

Investors are still on the edge after recent remarks from the Fed and other hawkish central banks across the globe. Risk assets have taken a hit since U.S. policymakers last week signaled a peak rate that was above market expectations. Sentiment remained sour after former New York Fed President and Bloomberg Opinion columnist William Dudley told Bloomberg Television on Monday that optimistic markets could only make the central bank tighten even more. 

European Central Bank Governing Council Member and Bundesbank President Joachim Nagel saying it will take some time until inflation slows to the central bank’s 2 per cent target also dampened the mood on Monday.

“Those who were in the camp of a year-end rally are now second-guessing their investment thesis,” wrote JC O’Hara, chief market technician at MKM Partners. “The markets may have placed a little too much faith in Santa Claus and the rally he typically brings.”

But some investors are looking past fears of an economic recession triggered by higher interest rates, and are betting instead that inflation might be peaking, which would allow the Fed and its peers some leeway in their tightening policy. 

“I’m kind of more in the camp of they hike in February, and I do think they’ll hike again in March, but that’s probably it,” Matt Brill, head of U.S. investment grade and senior portfolio manager at Invesco, said on Bloomberg Television. “We’re 90 per cent-95 per cent of the way done here. I think the floor has sort of been set and the worst is certainly behind us.”

Meanwhile, U.S. homebuilder sentiment sank in December to a level not seen in over a decade outside of the pandemic, amid high mortgage rates and construction costs.

Earlier, global equity investors were somewhat heartened by a vow from China’s top leaders to boost the economy next year by reviving consumption and supporting the private sector. Oil climbed. 

Key events this week:

• China loan prime rates, Tuesday
• Bank of Japan interest rate decision, Tuesday
• U.S. housing starts, Tuesday
• EIA Crude Oil Inventory Report, Wednesday
• U.S. existing home sales, U.S. Conference Board consumer confidence, Wednesday
• U.S. GDP, initial jobless claims, U.S. Conf. Board leading index, Thursday
• U.S. consumer income, new home sales, U.S. durable goods, PCE deflator, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.9 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 1.4 per cent
• The Dow Jones Industrial Average fell 0.5 per cent
• The MSCI World index fell 1.1 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.2 per cent to US$1.0604
• The British pound was little changed at US$1.2144
• The Japanese yen fell 0.3 per cent to 137.01 per dollar

Cryptocurrencies

• Bitcoin fell 0.9 per cent to US$16,594.34
• Ether fell 0.5 per cent to US$1,176.27

Bonds

• The yield on 10-year Treasuries advanced 11 basis points to 3.59 per cent
• Germany’s 10-year yield advanced five basis points to 2.20 per cent
• Britain’s 10-year yield advanced 17 basis points to 3.50 per cent

Commodities

• West Texas Intermediate crude rose 1.8 per cent to US$75.65 a barrel
• Gold futures fell 0.2 per cent to US$1,796.30 an ounce