A drop in tech shares drove U.S. stocks lower, while Treasuries retreated after a surprise Bank of Canada rate increase fueled bets the Federal Reserve is not done with its own tightening.
The Nasdaq 100 fell 1.8%, with the likes of Alphabet and Microsoft off at least 3%.
It was the first drop of the past five sessions for the technology-heavy gauge.
Megacap tech companies had powered the S&P 500 to the brink of a bull market before Wednesday’s pullback.
The small-cap Russell 2000 added 1.8%, climbing for a second day after weeks of underperformance.
Yields on the policy-sensitive two-year rose to 4.56% as traders drove up wagers for a quarter point hike in U.S. interest rates by July.
“You could see a little bit of a pullback because of the froth in the market,” Seema Shah, chief global strategist at Principal Asset Management, told Bloomberg Television.
“If you don’t get a recession sooner, the later it is, the harder it becomes. You want to get this out of the way.”
Expectations of higher interest rates for longer, to combat inflation, are weighing on the tech sector.
Policy decisions are due from the Federal Reserve and the European Central Bank next week, with the Fed signaling it may pause rate hikes in June before resuming them later.
“In marked contrast to the Fed, the Bank of Canada seems comfortable going into a meeting without its rate decision presignaled to the market,” said Deutsche Bank strategist Alan Ruskin.
He expects a “hawkish hold” as the more likely decision from the U.S. central bank.
“In part because of the meeting’s timing, coming both before the May labor market data, and, the Federal Reserve’s June FOMC, that favors a ‘skip’ decision,” he wrote in a note to clients.
Bridgewater Associates’ billionaire founder Ray Dalio said while interest rates won’t go much higher, the economy will get worse.
“We are at the beginning of a late, big-cycle debt crisis when you are producing too much debt and have a shortage of buyers,” Dalio said from the Bloomberg Invest conference in New York.
In currency markets, Turkey’s lira slumped about 7% to a record low against the dollar amid increasing signs that policymakers may be scaling back interventions to support the currency.
President Recep Tayyip Erdogan’s appointment of former Merrill Lynch strategist Mehmet Simsek as his new Treasury and finance minister has sparked expectations of a return to more orthodox monetary policy and raised the prospect of reduced intervention in markets.
Elsewhere, gold tumbled. Bitcoin slid in the wake of a sweeping crackdown by U.S. regulators. And oil gained, driving energy shares higher.