U.S. stocks declined after strong retail sales data and comments from at least two Federal Reserve speakers recast bets that the central bank’s policy tightening regime is nearing an end. 

About 68 per cent of S&P 500 companies ended Wednesday’s session lower. The index fell after a report showed retail sales posted the biggest increase in eight months in October, outpacing estimates and indicating the economy can withstand additional Fed hikes. Target Corp.’s disappointing earnings also dampened sentiment. 

The tech-heavy Nasdaq 100, which is typically more sensitive to interest rates, dropped as much as 1.7 per cent. A closely watched part of the U.S. yield curve is now the most inverted it has been since the early 1980s, signaling concerns that restrictive Fed policy will sap the economy. 

The market pullback came after a hefty rally fueled by softer-than-expected U.S. inflation data that fanned expectations the Fed may be able to slow its tempo of interest-rate hikes. While a slew of Fed officials in recent days have backed these expectations, they’ve also emphasized the need to keep hiking into next year. 

On Wednesday, New York Fed President John Williams bruised sentiment after he said the central bank should avoid incorporating financial stability risks into its considerations. San Francisco Fed President Mary Daly, meanwhile, stressed that a pause is “off the table.” 

Goldman Sachs Group Inc. now expects the Fed to boost its key rate to a range of 5 per cent to 5.25 per cent, up from the previous call of 4.75 per cent to 5 per cent. 

 “The market is just trying to grasp for news and it’s prone to overcompensate for the news, whether it’s good news or bad news,” Sandi Bragar, chief client officer at Aspiriant, said by phone. “We’re just at that point in the cycle where we think there’s still the high likelihood for potential downward trajectory of stocks as we head into 2023.”

The stronger retail numbers give the Fed more room to be aggressive, as officials have consistently communicated, Oksana Aronov, alternative fixed income head of markets strategy at JPMorgan Asset Management, said on Bloomberg TV. The disparate economic data that has hit the markets in recent weeks complicates the central bank’s mandate, she said.

Earlier, comments from U.S. President Joe Biden that Ukrainian air defenses, rather than by Russia, had likely caused Tuesday’s explosion in Poland soothed fears of an escalation in military conflict. While the White House backed Poland’s call on the matter, it emphasized that Russia was ultimately to blame.

Elsewhere, European Central Bank policy makers may slow down their tempo of rate hikes, with only a 50 basis-point increase next month, according to people with knowledge of the matter.

Key events this week:

• Eurozone CPI, Thursday
• U.S. housing starts, initial jobless claims, Thursday
• Fed’s Neel Kashkari, Loretta Mester speak, Thursday
• U.S. Conference Board leading index, existing home sales, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.8 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 1.4 per cent
• The Dow Jones Industrial Average fell 0.1 per cent
• The MSCI World index rose 1.1 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.5 per cent to US$1.0396
• The British pound rose 0.4 per cent to US$1.1916
• The Japanese yen fell 0.1 per cent to 139.44 per dollar

Cryptocurrencies

• Bitcoin fell 1.9 per cent to US$16,561.13
• Ether fell 2.8 per cent to US$1,211.08

Bonds

• The yield on 10-year Treasuries declined nine basis points to 3.68 per cent
• Germany’s 10-year yield declined 11 basis points to 2.00 per cent
• Britain’s 10-year yield declined 15 basis points to 3.15 per cent

Commodities

• West Texas Intermediate crude fell 1.7 per cent to US$85.48 a barrel
• Gold futures were little changed