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Equities, led by technology stocks, fall in the midst of decisions by central banks




Major US stock indices declined after major central banks around the world took steps to tighten monetary policy, reversing some of their large gains from the previous session.

The S&P 500 fell around 0.6%, with losses accelerating late in the afternoon. Nasdaq Composite fell 2.1% as technology stocks declined after the broader market. The Dow Jones Industrial Average fell around 80 points, or 0.2%.

US stocks rose on Wednesday after the Fed decision, with the S&P 500 reversing previous losses to have a big one-day progress that put it just below the previous final record. Some investors said that the markets had reacted positively to the Federal Reserve’s decision because it reduced the risk of continuous growth in consumer prices. Although the central bank paved the way for three rate hikes next year, analysts said the Fed did not become as aggressive in raising interest rates as first feared.

Nevertheless, concerns about the Fed̵[ads1]7;s path and the spreading Covid-19 Omicron variant have created volatility in the past and made some investors more cautious.

Since the Thanksgiving, large indices have weakened with volatility stemming from the new Covid-19 variant and changing Fed policies. A survey released Thursday by the American Association of Individual Investors showed that bullish sentiment among investors recently fell to a three-month low.

The technology sector has been particularly turbulent, as investors have changed their view of growth companies and fled some of the most crowded bets. The technology-heavy Nasdaq is on its way for its fourth consecutive session with movements above 1% in both directions. Although the S&P 500 has soared near the recent high, there has been great movement among individual stocks and sectors.

“There’s a lot going on beneath the surface,” said Adam Phillips, CEO of Portfolio Strategy at EP Wealth Advisors. “The underlying narrative and feeling has changed.”

Apple lost 4.1% on Thursday, while Amazon shares fell 2.1%. Tesla lost 4.2 percent. Meanwhile, shares of banks and energy companies improved. Although the wider market fell, eight of the S&P 500’s 11 sectors achieved an increase in afternoon trading, a sign of the technology’s influence in the market.

Some analysts said that the prospect of higher interest rates has made growth stocks less attractive.

Adobe lost 10% after instructions that were worse than Wall Street’s forecasts, making it one of the biggest losers in the S&P 500. It is one of several software companies that have registered a huge movement after earnings. Oracle shares recently rose around 15.6% after earnings this month, making it the company’s biggest jump after earnings in more than 10 years, according to the brokerage Macro Risk Advisors.

Nevertheless, some investors said that Thursday’s move would prove to be a sting.

“It’s a golden cap interpretation,” said Edward Park, chief investment officer at Brooks Macdonald, referring to a situation in which the Fed tames inflation but does not push interest rates high enough to kill the economic recovery.

Mr. Park said stocks are likely to continue to rise through the end of the year. “You have people who say, you know, it’s painful to have a steady income or cash.”

In the corporate news, Lennar fell 3.2% after the homebuilder reported earnings and sales that missed analysts’ estimates. Accenture jumped around 7% after raising earnings forecasts.

Overseas markets rose. The pan-continental Stoxx Europe 600 rose 1.2%, while the UK’s blue-chip FTSE 100 rose by around 1.3% after the Bank of England raised its reference rate. The increase was the first from a major central bank since the pandemic began.

The Federal Reserve says it will speed up the phase-out of the bond-buying program, the biggest step the central bank has taken to reverse the stimulus from the pandemic. Here’s how tapering works and why it sends markets on edge. Photo illustration: Adele Morgan / WSJ

The European Central Bank kept the key interest rate on hold and said it would not increase borrowing costs until inflation was permanently above target. With deviations from the Fed, the ECB said it would phase out an emergency bond buying program while increasing other stimulus measures.

The Bank of England said it was necessary to raise interest rates to bring inflation back to the 2% target. The Fed completed its own pivot on Wednesday, approving plans to end a program of buying assets by March and putting in three rate hikes in 2022.

Wall Street indices rose on Wednesday following the Federal Reserve’s political decision.


Photo:

ANDREW KELLY / REUTERS

Signs of an increasingly tight labor market are one of the reasons why the US and the UK have changed course to phase out monetary stimulus. Data released on Thursday added to this picture, and shows that new US applications for unemployment benefits increased last week, but remained at very low levels.

Some investors have become more concerned about Covid-19 infection rates, which have been rising in Germany and other parts of Europe. This has led to a new wave of government restrictions and consumer hesitation.

And many traders are looking at a large option expiration tomorrow, when more than 109 million contracts will expire, up about 19% from the same time last year, according to Chris Murphy, co-director of derivatives strategy at Susquehanna. More than 70 million individual stock options are set to expire tomorrow, the highest for a December expiration in the last decade.

Many traders have turned to bullish options this year to bet on a stock market rise, which increases the number of outstanding contracts. Sometimes the expiration dates for these options have created volatility in the markets.

Brent crude oil futures, the benchmark index in international oil markets, rose around 1.5% to $ 75.02 a barrel. Yields on 10-year government bonds ticked down to 1.422% on Thursday from 1.460% on Wednesday.

Turkey’s currency crisis deepened after the central bank bowed to political pressure to cut interest rates, despite soaring inflation.

In Asia, Japan’s Nikkei 225 rose 2.1%, the Shanghai Composite Index rose around 0.8% and Hong Kong’s Hang Seng rose 0.2%.

Write to Joe Wallace at joe.wallace@wsj.com and Gunjan Banerji at gunjan.banerji@wsj.com

Corrections and reinforcements
Interest rates on 10-year government bonds ticked down to 1.419% in trading on Thursday morning. An earlier version of this article erroneously said that they ticked up to that level from Wednesday. (Corrected December 16)

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