Stocks Fall Amid Decisions From Central Banks

U.S. stocks jumped on Wednesday, with the S&P 500 reversing earlier losses to notch a big one-day advance that put it right below its prior closing record. Some investors said markets had responded positively to the Federal Reserve’s latest moves regarding interest rates and the rollback of bond buying because they dialed down the risk of runaway growth in consumer prices. Though the central bank paved the way for three interest-rate increases next year, analysts said that the Fed didn’t come off as aggressive as initially feared.

Still, concerns about the Fed’s path and the spreading Covid-19 Omicron variant have stirred big swings lately and made some investors more cautious toward stocks. Since Thanksgiving, major indexes have been roiled with volatility. A survey released Thursday by the American Association of Individual Investors showed that bullish sentiment among investors recently fell to a three-month low.

The tech sector has been particularly turbulent, as investors have rejiggered their outlooks on growth companies and fled some of the most crowded bets. The tech-heavy Nasdaq notched its fourth consecutive session of moves greater than 1% in either direction. And though the S&P 500 has been hovering near its recent high, there have been large swings among individual stocks and sectors.

“There’s a lot going on under the surface,” said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors. “The underlying narrative and sentiment has changed.”

Apple shares lost $7.04, or 3.9%, to $172.26. Amazon shares slipped $88.88, or 2.6%, to $3,377.42. Tesla lost 5%.

Some analysts said that the prospect of higher interest rates has made growth stocks less attractive.

Adobe shares dropped 10% after guidance that fell short of Wall Street forecasts, making it one of the biggest losers in the S&P 500. Several other software companies also fell sharply on Thursday and some of them have been recording huge post-earnings moves. Oracle shares recently surged around 16% after earnings this month, making it the company’s biggest post-earnings jump in more than 10 years, according to brokerage Macro Risk Advisors. Intuit and Salesforce.com have also logged some of their biggest post-earnings moves of the past decade in recent weeks. 

Though the broader market fell, eight of the S&P 500’s 11 sectors notched gains in afternoon trading, a sign of tech’s influence on the market. Shares of banks and energy companies outperformed.

Some investors said that Thursday’s moves would prove to be a blip.

“There’s a goldilocks interpretation,” of the Fed, said Edward Park, chief investment officer at Brooks Macdonald, referring to a situation in which the Fed tames inflation but doesn’t push rates high enough to kill the economic recovery.

Mr. Park said stocks are likely to keep rising through the end of the year. “You have people saying, you know, it’s painful being in fixed income or cash.”

Overseas markets rose. The pan-continental Stoxx Europe 600 gained 1.2%, while the U.K.’s blue-chip FTSE 100 added around 1.3% after the Bank of England nudged up its benchmark rate. The raise was the first by a major central bank since the pandemic began.

The European Central Bank kept its key interest rate on hold and said it wouldn’t raise borrowing costs until inflation was durably above target. Diverging from the Fed, the ECB said it would phase out an emergency bond-buying program while boosting other stimulus measures. 

The Bank of England said it was necessary to raise rates to bring inflation back to its 2% target. The Fed completed its own pivot Wednesday, approving plans to end a program of asset purchases by March and penciling in three rate rises in 2022.

Signs of an ever-tighter labor market are one reason the U.S. and U.K. have shifted course to unwind monetary stimulus. Data released Thursday added to that picture, showing new U.S. applications for unemployment benefits edged higher last week but remained at very low levels.

Some investors have grown more concerned about Covid-19 infection rates, which have been on the rise in Germany and other parts of Europe. That has prompted a fresh wave of government restrictions and consumer hesitancy.

And many traders are watching a big options expiration Friday, when more than 109 million contracts will expire, up roughly 19% from the same time last year, according to Chris Murphy, co-head of derivatives strategy at Susquehanna. More than 70 million single-stock options are set to expire Friday, the highest for a December expiration over the past decade.

Many traders have turned to bullish options this year to bet on a stock-market ascent, driving up the number of contracts outstanding. At times, these options expiration dates have stoked volatility in markets.

Brent-crude futures, the benchmark in international oil markets, rose 1.5% to $75.02 a barrel. Yields on 10-year Treasury notes ticked down to 1.422% Thursday from 1.460% Wednesday.

Turkey’s currency crisis deepened after the central bank bowed to political pressure to cut interest rates, despite soaring inflation.

In Asia, Japan’s Nikkei 225 gained 2.1%, the Shanghai Composite Index rose around 0.8% and Hong Kong’s Hang Seng added 0.2%.

Write to Gunjan Banerji at gunjan.banerji@wsj.com and Joe Wallace at joe.wallace@wsj.com

Corrections & Amplifications
Yields on 10-year Treasury notes ticked down to 1.419% in trading Thursday morning. An earlier version of this article incorrectly said they ticked up to that level from Wednesday.(Corrected on Dec. 16)