S&P 500 Falls Amid $5.3 Trillion ‘Triple Witching’: Markets Wrap

(Bloomberg) — The stock market fell as tech sold off and a pile of options expiring Friday threatened to trigger sudden price swings.

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Wall Street is facing a quarterly episode ominously known as triple witching in which derivatives contracts tied to stocks, index options and futures are scheduled to mature — compelling traders en masse to roll over their existing positions or to start new ones. About $5.3 trillion were set to expire, according to Rocky Fishman, founder of derivatives analytical firm Asym 500.

“It’s a day in which the direction of the market is very, very difficult to predict,” said Matt Maley at Miller Tabak. “The ‘internals’ get so skewed by the expiration that they don’t tell us anything. It will be important that investors don’t use today’s action when trying to decipher what is going to happen in the marketplace next week and beyond.”

The options event comes at a critical juncture for markets positioning for next week’s Federal Reserve policy meeting. A recent pickup in inflation isn’t likely to shift officials’ forecasts for three interest-rate cuts this year and four in 2025, according to economists surveyed by Bloomberg News.

The S&P 500 dropped to around 5,120, with trading volume that was 20% above the average of the past month. The Nasdaq 100 fell 1%. Adobe Inc. sank on a weak sales outlook. Nvidia Corp. headed toward a 10th straight weekly gain, with its artificial intelligence conference just days away. Treasury 10-year bonds were set for their worst week this year.

Traders in interest-rate swaps pushed bets on the timing of the full first, quarter-point rate cut from the Fed to the central bank’s July meeting. Yields rose on the day on most maturities, leaving both two- and 10-year rates more than 20 basis points higher on the week.

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The selloff caps a week in which reports showed inflation remains stubbornly sticky, intensifying the debate around the degree of easing officials will signal after their policy meeting next week.

“This week has been remarkably confusing on multiple fronts,” said Florian Ielpo at Lombard Odier Asset Management. “The macroeconomic news flow has made it clear that the US economy is unexpectedly slowing down, while inflation is decelerating at a slower pace. Instead of focusing on the economic slowdown, markets have fully embraced the inflation narrative.”

Fed officials last released quarterly forecasts in December, anticipating three quarter-point cuts in 2024, and they’re set to release an update of those projections — known as the dot plot — on March 20.

Economists at JPMorgan Chase & Co. changed their forecast for the Fed’s monetary-policy rate cuts over the course of all of 2024 to 75 basis points. Previously they expected a total of 125 basis points.

The glide path to the Fed’s 2% inflation target is anything but smooth and the final mile to the finish line is likely to take some time and a lot more data to gauge its progress, according to Carol Schleif at BMO Family Office.

“The earliest possible cut could be June, though we wouldn’t be shocked to see that delayed to later in the year if the data continues to come in hot as recent data has,” she noted. “Our base case is for three total rate cuts in 2024, though it’s possible that the Fed cuts rates even fewer times if the economic data surprises to the upside.”

The rally in equity markets could falter if sticky inflation prompts the Fed to turn more hawkish next week and signal fewer-than-expected rate cuts, according to Barclays Plc strategists led by Emmanuel Cau.

“With the Fed so far endorsing current market pricing of three cuts starting in June, investors continue to see the glass half full on the soft landing narrative,” they wrote.

Investors are dismissing the risk of stagflation, sending record flows into US equities, according to Bank of America Corp.

US equity funds got $56 billion in the week through March 13, strategist Michael Hartnett wrote in a note, citing EPFR Global. Technology stocks had the largest inflow among sectors, at $6.8 billion, rebounding from a record outflow.

Hartnett said a “new bout of stagflation means outperformance of gold, commodities, crypto, cash, a big steepening of the yield curve, and a very contrarian equity barbell of resources & defensives.”

Corporate Highlights:

Nippon Steel Corp. said it’s determined to complete its $14.1 billion acquisition of United States Steel Corp., even after President Joe Biden stated the company should stay in US hands.

JD.com Inc. said it will not make an offer for British electronics retailer Currys Plc, just days after US buyout firm Elliott Investment Management also walked away.

Binance Holdings Ltd. has tightened requirements for listing new digital tokens, stepping up efforts to bolster investor protections on its platform.

Boeing Co. has sent a so-called multi-operator message to operators of the 787 jetliner following an in-flight incident involving the long-distance jet a few days ago, in which the plane briefly and rapidly lost altitude, injuring multiple people on board.

United Airlines Holdings Inc. is close to securing three dozen or more Airbus A321neo jets from aircraft lessors as it looks to replace Boeing Co. 737 Max 10 orders that are at least five years behind schedule, according to people familiar with the matter.

Madrigal Pharmaceuticals Inc.’s drug Rezdiffra gained the first US approval to treat a potentially deadly liver disease that affects millions worldwide, succeeding in an area where some bigger rivals have failed.

Reckitt Benckiser Group Plc plunged after a jury awarded an Illinois woman $60 million in damages, saying the company’s Enfamil baby formula led to the death of her premature baby.

Some of the main moves in markets:

Stocks

The S&P 500 fell 0.6% as of 3:09 p.m. New York time

The Nasdaq 100 fell 1%

The Dow Jones Industrial Average fell 0.5%

The MSCI World index fell 0.6%

Currencies

The Bloomberg Dollar Spot Index rose 0.1%

The euro was little changed at $1.0890

The British pound fell 0.1% to $1.2738

The Japanese yen fell 0.5% to 149.02 per dollar

Cryptocurrencies

Bitcoin fell 0.4% to $70,386.38

Ether fell 1.3% to $3,790.1

Bonds

The yield on 10-year Treasuries advanced one basis point to 4.30%

Germany’s 10-year yield advanced two basis points to 2.44%

Britain’s 10-year yield advanced one basis point to 4.10%

Commodities

West Texas Intermediate crude fell 0.4% to $80.91 a barrel

Spot gold fell 0.2% to $2,158.81 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Lu Wang, Carter Johnson and Farah Elbahrawy.

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©2024 Bloomberg L.P.

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