(Bloomberg) — High-flying stocks notched one their worst days in months Wednesday after Wall Street warned of a pullback on the rally ignited by the Federal Reserve’s pivot last week.

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The Nasdaq 100 ended the session down 1.5%, the biggest one-day drop in eight weeks, as the tech-heavy benchmark drew back from its latest all-time high. The S&P 500 fell at a similar pace in its steepest drop since Sept. 26.

Some in the market speculated that expiring zero-day options traded Wednesday helped accelerate the selloff as options dealers sold more to rebalance their positions before expiration.

Relative strength readings on the gauges had been trading at levels typically seen before a decline. Wall Street’s fear gauge — the VIX — also rose sharply, it has been trading near multi-year lows.

Newedge Wealth’s Cameron Dawson warned of the market risks.

“It certainly looks like it has become very one-sided, and it is a scary world when everybody gets on one side of the boat,” the chief investment officer of Newedge Wealth, told Bloomberg Television. “The market is very extended, we do see it being very overbought. But we’re in this melt-up period and so oftentimes things can get even sillier before they really do have a pullback.”

Jim Caron, portfolio solutions CIO at Morgan Stanley Investment Management, was also cautious looking ahead to the new year. “It’s going to get a lot rockier and a lot more uncertain into the future.”

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Treasuries powered ahead with the yield on the policy-sensitive two-year notching a 10 basis point move, the 10-year rate fell to 3.9%. British 10-year debt led the global bond rally following data showing a slowdown in UK inflation.

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Traders also digested data showing US consumer confidence in December rose by the most since early 2021 on Wednesday. The second-straight monthly increase showed Americans were less concerned about a recession, but economists are still keeping a wary eye on the jobs market.

“While a sustained improvement in confidence would be a positive signal about consumer attitudes and spending, a loosening in labor market conditions owing to a restrictive policy stance is likely to weigh on demand, consumption and growth going forward,” Rubeela Farooqi at High Frequency Economics wrote.

Separately, sales of previously owned US homes edged higher in November off of a 13-year low, according to a National Association of Realtors report, earlier data showed mortgage rates fell to their lowest since June.

Some of Wall Street’s biggest bulls heading into 2023 remained undaunted at the prospect of more strength next year. Fundstrat Global Advisors LLC’s Tom Lee, who came closest to predicting the trajectory of the S&P 500 for this year among strategists tracked by Bloomberg, sees the benchmark hitting 5,200 in 2024.

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Investors are also starting to weigh risks stemming from potential shipping delays and freight cost increases, as companies divert cargoes away from the Red Sea to avoid militant attacks. This rerouting will mean higher shipping costs and longer delivery time, Bloomberg Economics wrote in a note.

The focus now turns to upcoming data readouts, including Thursday’s GDP print and Friday’s data on personal consumption expenditures — the Fed’s preferred inflation gauge.

In commodities, crude oil fell below $75 a barrel, while gold tumbled.

Key events this week:

• Bank Indonesia rate decision, Thursday

• US GDP, initial jobless claims, Conf. Board leading index, Thursday

• Nike earnings, Thursday

• Japan inflation, Friday

• UK GDP, Friday

• US personal income and spending, new home sales, durable goods, University of Michigan consumer sentiment index, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.5% as of 4 p.m. New York time

• The Nasdaq 100 fell 1.5%

• The Dow Jones Industrial Average fell 1.3%

• The MSCI World index fell 1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%

• The euro fell 0.5% to $1.0931

• The British pound fell 0.8% to $1.2626

• The Japanese yen was little changed at 143.75 per dollar

Cryptocurrencies

• Bitcoin rose 2.2% to $43,451.12

• Ether was little changed at $2,184.19

Bonds

• The yield on 10-year Treasuries declined seven basis points to 3.86%

• Germany’s 10-year yield declined four basis points to 1.97%

• Britain’s 10-year yield declined 12 basis points to 3.53%

Commodities

• West Texas Intermediate crude fell 0.2% to $73.76 a barrel

• Spot gold fell 0.5% to $2,029.78 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from David Marino, Vildana Hajric, Alexandra Semenova, Sagarika Jaisinghani, Sujata Rao and Alice Atkins.

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