Stock markets dropped Wednesday amid profit-taking as the new head of the Federal Reserve, Kevin Warsh, gave no indication of the timing of likely US interest-rate rises.
Wall Street’s main indices opened lower, with the Dow coming off a second straight record close and the tech-rich Nasdaq its best quarterly gain in six years with a 21.4 percent gain.
“After the recent rally, investors are catching a breath, with profit-taking looking likely as attention turns back to the outlook for US interest rates,” said Susannah Streeter, chief investment strategist at Wealth Club.
European stocks were also lower in afternoon trading.
Asian stock markets made some gains after Wall Street’s strong performance on Tuesday.
Stock markets globally enjoyed a largely fruitful first half of the year thanks to a surge in tech stocks on the AI boom, but ructions in the sector over the past few weeks have revived concerns that a bubble has formed.
While markets have endured such issues in the past, and bounced back to scale more heights, there is talk that the latest pullback might be more lasting.
That puts Thursday’s US non-farm payrolls figures for June in focus, with a strong reading likely to ramp up expectations of a rate hike and deal a fresh blow to stocks, while a below-forecast reading could provide a boost.
June private sector job growth data released Wednesday came in below expectations and also slowed down from May.
“While AI remains a long-term structural growth theme, investors are becoming increasingly focused on valuations and whether the enormous investment in AI infrastructure will translate into earnings growth quickly enough to justify current share prices,” noted Fiona Cincotta,analyst at City Index traders.
“At the same time, a more hawkish Federal Reserve has weighed on high growth stocks.”
She said markets were eyeing a 60-percent chance of Fed hiking rates by a quarter point in September as inflation stays high, with some predicting three increases before January.
The dollar continued to benefit from talk of rate hikes, keeping the yen striking a fresh 40-year low versus the US currency.
“The strong dollar is proving a nightmare for Japan’s policymakers,” said Trade Nation analyst David Morrison.
He noted that the value of yen has sunk below the level that triggered intervention to prop up the currency in April.
It “increasingly appears like a game of chicken between traders and the authorities as to when intervention may take place,” he added.
The prospect of a higher interest rate differential is fueling what investors call the carry trade — borrowing in yen with low rates and then investing it in higher-yielding dollar assets.
