Stocks sank before Friday’s jobs data amid concern that a deeper recession could be in store with the Federal Reserve expected to hold rates at a higher level for longer to tame inflation.

The S&P 500 saw its fourth straight decline, dragged down by big tech as Treasury yields climbed. Apple Inc. tumbled over 4 per cent and Amazon.com Inc. suffered its longest slide since 2019. A key segment of the Treasury curve reached new extremes of inversion, touching a level not seen since the 1980s when the Fed was aggressively tightening. Curve inversions have a track record of preceding economic downturns.

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Swaps that reference future Fed meetings indicate an expected peak rate above 5.1 per cent around mid-2023. Estimates briefly dropped below 5 per cent on Wednesday. The benchmark rate currently sits in a range of 3.75 per cent to 4 per cent.

“Remember, ‘lower for longer’ in 2021 in terms of the interest rate environment?,” wrote Matt Maley, chief market strategist at Miller Tabak + Co. “Well, now we have ‘higher for longer’… as well as ‘slower but higher.’ A rise in short-term rates might take longer to play out, but they’re headed for a higher level than the markets have been thinking.”

While projections show October payroll growth moderated to 198,000, such an increase would still be higher than a monthly pace shy of 100,000 that economists reckon is neither too strong nor too weak for the economy over the longer term. Applications for unemployment insurance hovered around historically low levels, reinforcing what Fed Chair Jerome Powell described as an “overheated” jobs market.

Markets are rightly more concerned with the ultimate level of rates rather than the pace of tightening, according to Mark Haefele, chief investment officer at UBS Global Wealth Management -- who doesn’t believe the conditions are in place for a sustained stock rally.

“The Fed, along with other major central banks, looks likely to keep tightening rates until the first quarter of 2023,” Haefele noted. “Economic growth will likely continue to slow into the start of the new year, and global financial markets are vulnerable to stress while monetary policy continues to tighten. Such headwinds have yet to be fully reflected in earnings estimates or equity valuations.”

The pound slumped as the Bank of England told investors to rein in expectations for hikes.

European Central Bank President Christine Lagarde warned that a “mild recession” is possible, but that it wouldn’t be sufficient in itself to stem soaring prices. The comments are part of a raft of public appearances by ECB officials, as investors and analysts ponder the twin challenges of record price growth and a likely economic downturn, due largely to Russia’s invasion of Ukraine.

In corporate news, Peloton Interactive Inc. delivered a weaker estimate for the current quarter than Wall Street was predicting, even as management declared that it was beating its own timeline for turning around the fitness company. Moderna Inc. earnings offered a preview into the future of Covid-19 vaccine sales, and so far it doesn’t look pretty. Qualcomm Inc., the biggest maker of smartphone processors, gave a weaker forecast than expected.

Key events this week:

• U.S. nonfarm payrolls, unemployment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 2 per cent
• The Dow Jones Industrial Average fell 0.5 per cent
• The MSCI World index fell 1.3 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.6 per cent
• The euro fell 0.7 per cent to US$0.9750
• The British pound fell 2 per cent to US$1.1163
• The Japanese yen fell 0.2 per cent to 148.23 per dollar

Cryptocurrencies

• Bitcoin rose 0.4 per cent to US$20,259.51
• Ether rose 2.1 per cent to US$1,543.45

Bonds

• The yield on 10-year Treasuries advanced four basis points to 4.14 per cent
• Germany’s 10-year yield advanced 10 basis points to 2.25 per cent
• Britain’s 10-year yield advanced 12 basis points to 3.52 per cent

Commodities

• West Texas Intermediate crude fell 2.1 per cent to US$88.09 a barrel
• Gold futures fell 1 per cent to US$1,633.40 an ounce