Bonds Retreat From Rally as Nasdaq 100 Drops Over 1%

US stocks and Treasuries experienced a decline as traders scaled back their expectations for interest-rate cuts, expressing concerns that the recent market rally may have been excessive. The Nasdaq 100 index saw a notable decrease of up to 1.9%, marking its most significant drop in about a month. This downturn was particularly evident in the technology sector, with major players like Apple Inc. and Tesla Inc. facing challenges.

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Apple Inc. faced a decline after a Barclays Plc analyst cautioned about a cooling demand for iPhones, while Tesla Inc. saw a drop following the release of its quarterly production results. Concurrently, the 10-year Treasury yield climbed to 3.94%.

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The initial trading day of the new year marked a pause in the robust rally witnessed in 2023, which propelled the S&P 500 by over $8 trillion. Tom Lee from Fundstrat Global Advisors, who accurately predicted last year's rally, remains optimistic about stocks in 2024. However, he emphasizes the importance of the first five days of January, stating that a weak performance during this period could undermine his bullish outlook. Lee anticipates reaching new highs in January, followed by a consolidation phase in the first half of the year.

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John Stoltzfus, Chief Investment Strategist at Oppenheimer Asset Management, shares a bullish outlook for 2024 but acknowledges the potential for US stocks to take a breather. He suggests that it is not uncommon for markets to pause after a substantial bull run, especially considering the significant surge in stock prices during the recently concluded fourth quarter. Stoltzfus believes that the next earnings season could reignite the market's upward momentum.

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The dollar gained 0.7%, with most emerging-nation currencies trading lower against it. The yen weakened in thin trading conditions following an earthquake in Japan on Monday. Bitcoin saw an upward movement, surpassing $45,000 for the first time in nearly two years. This surge is fueled by growing anticipation around the anticipated US approval for an exchange-traded fund directly investing in the leading cryptocurrency.

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Oil prices stabilized after trading above $72 per barrel. In Asia, market sentiment faced headwinds as Chinese President Xi Jinping acknowledged the challenges experienced by some companies and citizens in 2023. Additionally, ASML Holding NV, a semiconductor manufacturing equipment maker, reportedly canceled shipments of certain machines to China at the request of US President Joe Biden’s administration, further impacting China's markets.

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Despite the ongoing challenges in China, some investors view the nearly 60% slump as a signal to consider buying Chinese stocks. According to Markets Live Pulse survey, almost one-third of the 417 respondents plan to increase their China investments over the next 12 months.