S&P 500 Falls as $5.3 Trillion Options Test Looms: Markets Wrap

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

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Wall Street traders are bracing for 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 are set to expire this time, 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 episode 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 5,130, with trading volume that was 40% above the 30-day average. The Nasdaq 100 fell about 1%. Adobe Inc. tumbled on a weak sales outlook. Nvidia Corp. whipsawed, while heading toward its 10th straight weekly advance. Treasury 10-year yields topped 4.3%, extending this week’s increase to almost 25 basis points.

“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.”

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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.

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.”

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 0.4% as of 11:06 a.m. New York time

• The Nasdaq 100 fell 0.8%

• The Dow Jones Industrial Average fell 0.1%

• The Stoxx Europe 600 was little changed

• The MSCI World index fell 0.4%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro was little changed at $1.0888

• The British pound fell 0.1% to $1.2738

• The Japanese yen fell 0.5% to 149.02 per dollar

Cryptocurrencies

• Bitcoin fell 3.2% to $68,415.66

• Ether fell 3.5% to $3,705.4

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.31%

• 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

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Lu Wang.

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