US stocks reversed their strong rise during Wednesday's trading, recording one of their worst days in months, after major US banks warned of a market decline following the rise driven by the Federal Reserve's shift last week.

The Nasdaq 100 index fell sharply, losing 1.5% at the end of trading on Wednesday, recording the largest daily decline in eight weeks, as the index loaded with technology stocks retreated from its highest level ever. The S&P 500 index also fell at the same pace, recording the largest daily decline since September 26.

Some market participants speculated that the expiration of trading options in the same trading session on Wednesday helped accelerate the selling, as options traders sold more to rebalance their positions before expiration.

Measures of the relative strength of indices have reached levels that usually precede a decline. Wall Street's VIX fear index also rose sharply, after moving near multi-year lows.

“It definitely seems like trading has become very one-sided,” Cameron Dawson, chief investment officer at Newedge Wealth, told Bloomberg TV. “It gets scary when everyone takes sides in the market.” She added: The market is very exhausted, and we have noticed that it has deepened into the overbought zone. But we are now in a transition period, and oftentimes things can get more difficult before the market actually declines.

Bonds strengthened, with the yield on two-year bonds - the most sensitive to monetary policy - falling by eight basis points, and the yield on 10-year notes fell to 3.9%. British 10-year debt led global bonds higher after data showed UK inflation slowing.

Consumer confidence and existing home sales rise

Today, Wednesday, traders received data showing American consumer confidence rose in December by the most since early 2021. The second consecutive monthly increase showed that Americans were less concerned about the recession, but economists were still watching the jobs market cautiously.

While a continued improvement in confidence would be a positive signal on consumer sentiment and spending, easing labor market conditions due to a restrictive policy stance will likely weigh on demand, consumption and growth going forward, wrote Rubeela Faruqui of High Frequency Economics.

A separate report revealed that existing home sales in the United States rose in November from their lowest level in 13 years, according to a report by the National Association of Realtors, and previous data showed that mortgage rates fell to their lowest levels since June.

Some of Wall Street's biggest bulls expect stocks to continue rising in 2024, based on continued labor market consolidation and increased expectations of the Federal Reserve cutting interest rates.

Tom Lee of Fundstrat Global Advisors, who was closest to getting the S&P 500's path correct this year among strategists tracked by Bloomberg, sees the benchmark index hitting 5,200 in 2024.

Recession fears

But, on the other hand, others are still concerned about the continued rise. “Let’s enjoy the calm now,” Jim Caron, chief investment officer for portfolio solutions at Morgan Stanley Investment Management, told Bloomberg TV. “It will get more difficult and more uncertain in the future.”

A decline in FedEx Corp's profits, widely considered an indicator of the US economic outlook, has heightened concerns about an economic recession. The shipping company's stock price fell 11% in New York trading.

Investors are also weighing the risks of potential shipping delays and increased shipping costs, as companies divert shipments away from the Red Sea to avoid Houthi attacks. This rerouting will mean higher shipping costs and increased delivery time, Bloomberg Economics wrote in a note.

US investors' eyes are turning to upcoming data, including Thursday's GDP figures and personal consumption expenditures data - the Federal Reserve's most closely followed inflation indicator - due on Friday.

On the commodity front, the price of US oil fell below $74 per barrel, and the price of gold also fell.

Performance of the most important indicators:

  • The S&P 500 was down 1.5% at 4pm New York time.
  • The Nasdaq 100 fell 1.5%.
  • The Bloomberg Dollar Spot Index rose 0.3%.
  • Bitcoin price rose 2.2% to $43,451.12.
  • The price of gold in spot transactions fell 0.5% to $2,029.78 per ounce.