Midday Friday, US equity indexes experienced a decline as investors shifted their attention to rising government bond yields, impacting rate expectations for the upcoming dot plot, and dampening risk sentiment following a remarkable rally from Broadcom. The S&P 500 fell by 0.2% to 6,040.3, while the Nasdaq Composite declined 0.2% to 19,859.5, and the Dow Jones Industrial Average also dropped 0.2% to 43,830.7. The technology sector, which had been performing well earlier in the session, gave up its gains.
Communication services emerged as the worst-performing sector, particularly sensitive to Treasury yield fluctuations. Conversely, consumer staples, healthcare, and utilities managed to gain, indicating a shift towards a defensive market stance. In premarket trading on Friday, the Nasdaq had gained approximately 175 points, with both the Dow and the S&P 500 also displaying robust gains following Broadcom's fiscal Q4 results released overnight.
Morgan Stanley increased its price target for Broadcom to $233 from $180 while maintaining an overweight rating. The investment firm emphasized that the chip manufacturer remains "one of the most compelling ways" to invest in AI semiconductors over the next two to three years. As a result, Broadcom shares surged by more than 20% intraday, leading gains on the S&P 500 and the Nasdaq. Meanwhile, the 10-year US Treasury yield has been on an upward trend for five consecutive days this week, rising 6.7 basis points to 4.39% intraday.
This increase reflects a combination of fresh market supply, political factors concerning tariffs and tax cuts, and the Federal Reserve's anticipated policy trajectory for the coming year. Market participants are closely monitoring the 4.5% level on the 10-year yield ahead of the interest-rate decision scheduled for Wednesday.
Although a hawkish rate cut is approximately 97% priced in, the focus will be on guidance regarding future rate changes in 2025. Data from Forexlive indicates that only two additional cuts are currently factored into next year’s expectations. The forthcoming Fed dot plot is expected to provide crucial insights into policymakers' interest rate forecasts and will highlight their views on the trajectory of inflation. The US producer price inflation data released Thursday demonstrated an unexpected upside surprise, although core components feeding into the core personal consumption expenditures price index showed slight softness, according to Deutsche Bank.
Jim Reid, head of global fundamental credit strategy at Deutsche Bank, noted that the year-on-year core PPI climbed above 3%, adding uncertainty regarding the speed of any potential rate cuts next year. For the S&P 500, Thursday marked the ninth consecutive day where more constituents declined than advanced, marking the longest such streak since 2001.
Reid remarked, "So ex-technology, the market is losing some momentum even if the aggregate moves are still small." In commodity markets, gold fell by 1.1% to $2,679.82 per ounce, while silver experienced a 2.2% decline to $30.98 per ounce. In other economic updates released on Friday, US import prices rose by 0.1% in November, contrary to expectations of a 0.2% decrease per a Bloomberg survey.
Export prices remained unchanged in November, while a decline of 0.3% had been anticipated. West Texas Intermediate crude oil futures increased by 1.7% to $71.21 a barrel..