Japan Stocks Set to Drop Ahead of BOJ Decision: Markets Wrap

(Bloomberg) -- Stocks in Japan are set to decline as the nation’s central bank kicks off a closely watched series of global policy meetings. The world’s largest technology companies extended losses in late US hours on concerns the artificial-intelligence frenzy might have gone too far.

Equity futures pointed to a drop of more than 1% in Tokyo, while those for Hong Kong were little changed and Sydney was set for a slight gain. In the US, a $280 billion exchange-traded fund tracking the Nasdaq 100 was hit as Microsoft Corp. plunged amid slower cloud growth. That sets the scene for earnings from other tech heavyweights as markets also gear up for monetary policy decisions from the Bank of Japan, the Federal Reserve and the Bank of England.

Bank of Japan board members will discuss raising interest rates to around 0.25% on Wednesday from the current range of 0 to 0.1%, public broadcaster NHK reported, without identifying sources. The yen edged higher against the US dollar in early trading, extending Tuesday’s gain.

Bonds and gold climbed Tuesday amid a renewed flare-up in geopolitical risks as Israel’s military struck Beirut, aiming at a Hezbollah commander. Oil rose 0.7% early Wednesday.

A rotation out of big tech has dragged the Nasdaq 100 down 9% from its all-time high — leaving it on the cusp of a correction. The shift into cyclical pockets of the market began in earnest after signs of cooling inflation stoked bets the Fed will cut rates in September.

“If the Fed does not signal a September rate cut, markets could get a bit ugly given recent tech weakness — especially if earnings underwhelm,” said Tom Essaye at The Sevens Report.

The S&P 500 fell to around 5,435 on Tuesday. The Nasdaq 100 slid 1.4%. A gauge of the “Magnificent Seven” megacaps sank 2%. The Russell 2000 of small firms rose 0.3%. Nvidia Corp. tumbled 7%, wiping $193 billion from its market value.

Goldman Sachs Group Inc.’s chief David Solomon told CNBC that one or two Fed rate cuts later this year are looking increasingly likely. That’s after predicting just two months ago there would be no reductions in 2024.

If the Fed is about to begin a rate cutting cycle, stock bulls have history on their side. In the six prior hiking cycles, the S&P 500 has risen an average 5% a year after the first cut, according to calculations by the financial research firm CFRA. What’s more, the gains also broadened, with the small-cap Russell 2000 Index climbing 3.2% 12 months later, the data show.

To Bank of America Corp.’s Savita Subramanian, the S&P 500 has probably already logged the gains it will see this year, but the benchmark still presents ample opportunities for investors.

While neutral on the index overall, she says there’s potential for strong returns in a few areas: among dividend payers, “old school” capital-expenditure beneficiaries like infrastructure, construction and manufacturing stocks, and other themes that don’t revolve around artificial intelligence.

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Key events this week:

Some of the main moves in markets:

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This story was produced with the assistance of Bloomberg Automation.