Wall Street equities closed at the lowest level since December 2020, while US Treasury yields lurched higher after intense volatility in Britain’s gilt market and a lacklustre sale of new Treasuries shook investor sentiment.
The blue-chip S&P 500 share index ended the day down 1 per cent after having lost 4.7 per cent over the course of the previous week. The technology-heavy Nasdaq Composite fell 0.6 per cent on Monday.
Monday’s wobble in equities came as the yield on the 10-year US Treasury note, a benchmark for global borrowing costs, added 0.22 percentage points to 3.92 per cent — the highest level since 2010. Bond yields rise when prices fall.
The selling in the US followed a brutal session in London, in which gilt yields surged for the second trading day in a row after the UK government’s plans for big tax cuts spooked investors. Britain’s 10-year gilt yield rose on Monday by its most in 40 years, according to Refinitiv data.
A sale of US two-year Treasuries on Monday also highlighted how fund managers are demanding the government pay higher borrowing costs on expectations the Federal Reserve will continue pushing interest rates sharply higher.
Last week, the Fed led the charge on a series of interest rate rises by other global peers, implementing a third consecutive increase of 0.75 percentage points to a target range of 3 to 3.25 per cent.
The dollar, which tends to strengthen in times of economic and market stress, added 0.8 per cent against a basket of six peers, hitting a fresh 20-year high.
A specialist trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 22, 2022. REUTERS/Brendan McDermid
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NEW YORK, Sept 23 (Reuters) – A week of heavy selling has rocked U.S. stocks and bonds, and many investors are bracing for more pain ahead.
Wall Street banks are adjusting their forecasts to account for a Federal Reserve that shows no evidence of letting up, signaling more tightening ahead to fight inflation after another market-bruising rate hike this week.
The S&P 500 is down more than 22% this year. On Friday, it briefly dipped below its mid-June closing low of 3,666, erasing a sharp summer rebound in U.S. stocks before paring losses and closing above that level.
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With the Fed intent on raising rates higher than expected, “the market right now is going through a crisis of confidence,” said Sam Stovall, chief investment strategist at CFRA Research.
If the S&P 500 closes below the mid-June low in the days ahead, that may prompt another wave of aggressive selling, Stovall said. This could send the index as low as 3,200, a level in line with the average historical decline in bear markets that coincide with recessions.
While recent data has shown a U.S. economy that is comparatively strong, investors worry the Fed’s tightening will bring on a downturn. read more
timeline of the market
A rout in bond markets added pressure on stocks. Yields on the benchmark 10-year Treasury, which move inversely to prices, recently stood at around 3.69%, their highest level since 2010.
Higher yields on government bonds can dull the allure of equities. Tech stocks are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when bond yields rise.
Michael Hartnett, chief investment strategist at BofA Global Research, believes high inflation will likely push U.S. Treasury yields as high as 5% over the next five months, exacerbating the selloff in both stocks and bonds.
“We say new highs in yields equals new lows in stocks,” he said, estimating that the S&P 500 will fall as low as 3,020, at which point investors should “gorge’ on equities.
Goldman Sachs, meanwhile, cut its year-end target for the S&P 500 by 16% to 3,600 points from 4,300 points.
“Based on our client discussions, a majority of equity investors have adopted the view that a hard landing scenario is inevitable,” wrote Goldman analyst David Kostin. read more
Investors are looking for signs of a capitulation point that would indicate a bottom is near.
The Cboe Volatility Index, known as Wall Street’s fear gauge, on Friday shot above 30, its highest point since late June but below the 37 average level that has marked crescendos of selling in past market declines since 1990.
Bond funds recorded outflows of $6.9 billion during the week to Wednesday, while $7.8 billion was removed from equity funds and investors plowed $30.3 billion into cash, BofA said in a research note citing EPFR data. Investor sentiment is the worst it has been since the 2008 global financial crash, the bank said.
Kevin Gordon, senior investment research manager at Charles Schwab, believes there is more downside ahead because central banks are tightening monetary policy into a global economy that already appears to be weakening.
“It will take us longer to get out of this rut not only because of slowdown around the world but because the Fed and other central banks are hiking into the slowdown,” Gordon said. “It’s a toxic mix for risk assets.”
Still, some on Wall Street say the declines may be overdone.
“Selling is becoming indiscriminate,” wrote Keith Lerner, co-chief investment officer at Truist Advisory Services. “The increased probability of breaking the June S&P 500 price low may be what it takes to invoke even deeper fear. Fear often leads to short-term bottoms.”
A key signal to watch over the coming weeks will be how steeply estimates of corporate earnings fall, said Jake Jolly, senior investment strategist at BNY Mellon. The S&P 500 is currently trading at around 17 times expected earnings, well above its historical average, which suggests that a recession is not yet been priced into the market, he said.
A recession would likely push the S&P 500 to trade between 3,000 and 3,500 in 2023, Jolly said.
“The only way we see earnings not contracting is if the economy is able to avoid a recession and right now that does not seem to the odds-on favorite,” he said. “It’s very difficult to be optimistic on equities until the Fed engineers a soft landing.”
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Reporting by David Randall; Additional reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili, Nick Zieminski and David Gregorio
Our Standards: The Thomson Reuters Trust Principles.
The logo of technology company Nvidia is seen at its headquarters in Santa Clara, California February 11, 2015. REUTERS/Robert Galbraith/File Photo
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Sept 1 (Reuters) – New restrictions on exports of cutting-edge chips from Nvidia Corp (NVDA.O) to China have signaled an escalation of the U.S. crackdown on Beijing’s technological prowess and alarmed investors already worried about an industry downturn.
Shares of Nvidia fell 11% to $133.46 on Thursday, wiping out more than $40 billion in market value and dragging the Philadelphia SE Semiconductor Index (.SOX) down by more than 4%.
The U.S. move to restrict exports of two of Nvidia’s top computing chips for artificial intelligence – the H100 and A100 – to China could hurt the company’s business in the key market, according to a filing on Wednesday. read more
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The action by Washington comes as tensions rise over access to advanced chip technology and the future of Taiwan, where Nvidia and nearly all other big semiconductor companies source their chips from.
“On the surface, it looks like the U.S. government is looking to refrain from sales of next generation advanced chips, 7 nanometers and below, specifically for military end use in China,” said CFRA Research analyst Angelo Zino.
Rival Advanced Micro Devices Inc (AMD.O) was also asked on Wednesday to stop AI chip exports to China.
The Nvidia and AMD chips targeted by Washington are used for AI and machine learning applications, particularly building training modules for tasks such as natural language processing.
These modules could be also be useful for militaries in modeling bomb simulations and designing weapons.
Market watchers say the restrictions are likely to hit a swathe of Chinese tech companies including Alibaba Group Holding Ltd (9988.HK), Tencent Holdings Ltd (0700.HK), Baidu Inc , and Huawei Technologies Co Ltd [RIC:RIC:HWT.UL].
Nvidia also said on Wednesday that the move could interfere with the development of its flagship H100 chip, which is expected to ship later this year.
On Thursday, it announced the U.S. government has allowed exports and tech transfer needed to complete the development of the H100 chip. U.S. officials have also authorized the company to perform exports needed to provide support for U.S. customers of A100 through March 1, 2023.
The company has also been allowed to fulfill orders of the chips via its Hong Kong facility through Sept. 1, 2023. (https://bit.ly/3Q5YfhR)
Chinese customers are still required to obtain licenses from the U.S. government for the technology, a spokesperson for Nvidia said.
AMD did not respond to a request for comment on whether it received a similar authorization.
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Reporting by Akash Sriram, Yuvraj Malik and Tiyashi Datta in Bengaluru, additional reporting by Noel Randewich, Writing by Ankur Banerjee; Editing by Aditya Soni
Our Standards: The Thomson Reuters Trust Principles.
After the semblance of recovery seen in the cryptocurrency market since the mid-June bottom, digital currencies pulled back sharply on Friday, along with the equity market.
Pal Roots For Cryptos: Former Goldman Sachs executive and macroeconomic expert Raoul Pal, however, isn’t too concerned about the weakness. “Ah, the old cheeky pre-merger crypto shakeout I see…,” the economists said.
Ethereum ETH/USD is about to undergo the most significant upgrade in its history, called the Ethereum Merge, which is expected on Sept. 15. This represents the joining of the existing execution layer of Ethereum with its new proof-of-stake consensus layer, which will eliminate the need for energy-intensive mining.
Pal recently said Ethereum remains the “safest, easiest allocation,” and anticipates demand shock for the crypto, Dailyhodl reported. He sees increased demand from institutional investors.
See also: How to Buy Bitcoin (BTC)
Time For Accumulation: New lows are unlikely, he said, apparently suggesting that the crypto market may not pull back all the way down to its mid-June lows. He sees it most likely as a “gut-check quick drop.”
If all the cryptos hit new lows, Pal said he would keep adding. He reasoned that the two-year risk/reward gets “really attractive.”
“50% downside vs possible 10x upside = 20:1 R/R,” Pal said.
Ah, the old cheeky pre-merge crypto shakeout I see… I don’t expect new lows but most likely a gut-check quick drop, but let’s see.
New lows = keep adding (for me) as 2-year risk/reward gets really, really attractive
50% downside vs possible 10x upside = 20:1 R/R#ETH #BTC
— Raoul Pal (@RaoulGMI) August 19, 2022
At last check, Bitcoin BTC/USD was slipping 0.89% to $21,263.41 and Ethereum was down a steeper 5.12% at $1,622.10, according to Benzinga Pro data.
Stocks’ summer rally may mean the worst of the bear market is over, but even so, strategists who watch charts say another big downdraft is possible in September. Some strategists, in fact, say from a technical standpoint the market could have already launched into a new bull cycle. Others disagree, saying they need more confirmation from other signals. But they all note that September is historically negative for the market — and it could be again. Watching the 50-day moving average Ed Clissold, chief U.S. strategist at Ned Davis Research, said he sees technical signs that stocks may have already entered a bull market, but he warns that fundamentals could derail the market’s bullish stance. His work shows by the time 90% of common stocks are above their 50-day moving average, the market has been in a bull cycle for a median of 1.8 months. It has been two months since the mid-June low. He noted that as of Monday, about 89% of common stocks were above the intermediate moving average, but that number was more than 90% for S & P 500 stocks. The 50-day moving average is simply the average of the last 50 closing prices for a stock or index. A close above it would be a positive momentum signal. “One way to think about it is if this is a bull market which you only know in hindsight, this is how it should be going, and the technicals almost always tell you before the fundamentals and the macros,” said Clissold. “I’m not dismissing the macro concerns over the Fed tightening cycle or the earnings slowdown. Those are real concerns.” Spotting waypoints for stocks Stocks have been buoyed by positive momentum since setting a low in June. Strategists now say it appears that may have been the bear market low according to technical signals. The S & P 500 has been higher for four straight weeks, and the broad market index ended Monday about 18% above its June low. The market has made positive strides during the rally. For one, the S & P 500 closed Friday above 4,231, the 50% retracement or the midway point between its peak and trough. BTIG says that historically has meant the index should not set a new low in the current cycle. Strategists say that’s just one signal, and it alone does not indicate a bull market has begun. “You’re still below a downward sloping 200-day moving average,” said Todd Sohn, technical analyst at Strategas. “The broader trends haven’t changed as much as you’ve gotten these positive momentum signals. It’s really great short-term momentum and favorable signals for the next 12 months, but tactically I would question how much gas would be in the tank.” He said a downside move could take the S & P 500 to about 4,000 in the September period. ‘The demarcation between bull and bear’ The next major hurdle for stocks could be that 200-day moving average level on the S & P 500 — which stood at 4,327 on Monday. “That could be one day away,” Sohn said. The S & P 500 finished Monday at 4,297.14. “The 200-day moving average, to us, is always the demarcation between bull and bear, very simplistically as far as a popular and common way to look at these moves,” said Ari Wald, head of technical analysis at Oppenheimer. Wald said that level will be key for the S & P 500 to surpass, but he is also watching the 200-day level on individual stocks for a bull market signal. “The final signal doesn’t come until 70% of stocks are above their 200-day,” he said. As of Monday, that number for the New York Stock Exchange universe he watches was at 38%. “The sentiment pendulum went from extremes. I still think a lot of those bears have to capitulate,” Wald said. He expects stocks to see a pullback in the September into early October time frame, before a fourth quarter rally. That would follow the pattern of midterm election years, in which the market is typically higher in the final quarter of the year. “Just because the market can pull back in September doesn’t mean this isn’t a bull market,” said Ned Davis Research’s Clissold. He said short-term sentiment indicators were showing more bullishness among investors. “There’s some optimism that crept back into the market,” Clissold added. “A pullback that could relieve some of the optimism could be healthy for the intermediate term.” Sohn of Strategas said stocks that saw big gains recently could be especially vulnerable even now. “I think it makes sense to prune some of the those mean-reverting names, the cryptos and non-profitable tech type names. I wouldn’t want to overstay your welcome too much as they had a nice bounce,” he said. Sohn pointed to the big move higher in names like DraftKings , which began July at roughly $12 a share and closed Monday at $20.80. The Ark Innovation ETF , a poster child for high growth, is up about 30% since the beginning of July, but it’s still down close to 45% for the year. “These were summer rentals,” he said. “It’s time to move out.”
AT&T Inc.’s shares fell sharply Thursday after the telecommunications giant cut its free-cash-flow forecast for the year, but one analyst said the latest report wasn’t all bad.
In fact, LightShed Partners analyst Walt Piecyk titled his research note: “AT&T’s Q2 Was Actually Good. Here’s Why.”
Admittedly, AT&T’s
T,
-7.62%
management team didn’t win points from Piecyk for its handling of cash-flow forecasting over the past few months. Piecyk recalled flagging issues with AT&T’s older free-cash forecast back in March, namely a “liberal use of rounding, aversion to simply stating a cash tax estimate for presumably political reasons, and ultimately the use of working capital and DirecTV distributions in their free-cash-flow presentation.”
AT&T said Thursday that various trends contributed to the lowered forecast, including slower customer payment times and higher-than-expected cash expenses related to its own device purchases from suppliers.
“It’s startling that the stock would sell off this steeply on working capital, but management is largely to blame,” Piecyk wrote. “Free-cash-flow guidance should not be this complex and investors shouldn’t include ephemeral working capital benefits in their calculations.”
Elsewhere, however, he saw positives in the report. AT&T’s free-cash-flow metric is important to investors because the company pays a large dividend, but Piecyk doesn’t think that the company will need to cut its dividend any more.
“Its core business is performing well and the 5G capex cycle should be winding down,” he wrote. “In 2023, we believe AT&T can generate over $12 billion of free-cash flow. The full-year benefit of the dividend cut means that $12 billion covers ~$8.2 billion of expected dividend payments,” before taking into account working-capital impacts or about $3 billion in anticipated DirecTV distributions.
Piecyk also had an upbeat view on the company’s wireless performance, especially in light of investor debate about the company’s pricing and promotional strategies.
“The increased pricing on its rate plans did not spike churn and helped deliver post-paid phone ARPU [average revenue per user] growth for the first time in over two years,” he wrote. “This also sends a signal to the wireless industry that there is pricing power in this market.”
Piecyk sees additional room for the company to grow ARPU as the year progresses.
He acknowledged that “[i]nvestors are understandably concerned that AT&T is buying revenue growth with handset subsidies to both new and existing subscribers” but noted that the company was able to grow wireless earnings before interest, taxes, depreciation, and amortization (Ebitda) in the latest quarter. In addition, the company’s upgrade rate fell relative to a year earlier, suggesting that the upgrade cycle is stretching out.
While AT&T is feeling some pain in its business wireline business, Piecyk was impressed by the performance of the company’s fiber business, with net adds up 25% relative to a year before. “This further validates our industry assumptions of target market share for fiber overbuilders and the increased share that can be obtained in legacy markets,” he wrote.
Overall, Piecyk sees opportunities for AT&T moving forward, especially given what the latest numbers indicated about pricing actions. “We continue to believe wireless operators can increase price and cut costs,” he wrote, including through a potential curtailing of device subsidies.
Piecyk rates the stock a buy with a $26 target price.
Crypto industry experts are largely unfazed by Tesla’s decision to sell 75% of its Bitcoin (BTC) holdings, saying it’s a fairly typical strategy for companies to improve cash flow during economic slowdowns.
On Wednesday, the electric vehicle manufacturer revealed that it had sold 75% of its Bitcoin holdings in Q2, adding $936 million in fiat to its balance sheet.
During a conference call, Tesla CEO Elon Musk noted that the sale “should not be taken as a verdict on Bitcoin,” explaining that the move was due to liquidity concerns given the continued Covid lockdowns in China.
“The reason we sold a bunch of our Bitcoin holdings was that we were uncertain as to when the Covid lockdowns in China would alleviate. So it was important for us to maximize our cash position.”
“We are certainly open to increasing our Bitcoin holdings in the future.”
Asked by investors during the earnings call whether he saw Bitcoin as a long-term asset, Musk said the cryptocurrency was a “sideshow to the sideshow” of Tesla’s main goal, which is “to accelerate the advent of stable energy.”
“Cryptocurrency is not something we think of a lot,” he said.
Markus Thielen, chief investment officer at Singapore-based digital asset manager IDEG told Cointelegraph that Tesla likely sold off its Bitcoin as it was “seen as a distraction from their core business.”
“I would not be surprised if Tesla keeps nibbling in Bitcoin when Bitcoin stabilizes, otherwise they would have sold 100%.”
Comparison site Finder’s share trading expert Kylie Purcell explained that the electric car manufacturer hasn’t been alone in its decision to “shore up capital in cash currencies.”
“With the world heading into an economic slowdown and possibly a recession, it’s not unusual for investors and companies to move capital away from more volatile assets into fiat currency,” she noted.
She also added that while the price of Bitcoin dipped following the announcement, there are already signs of recovery.
On Wednesday, Bitcoin’s price fell approximately 2.6% following Tesla’s announcement and has returned to $23,299 at the time of writing — tracking close to its one-month high, meaning that the crypto community may not have been too concerned by the announcement.
So Tesla has already sold off their inventory, appears to have mainly done so to maintain positive cash flow (non bitcoin-centric reasons), and still has 25% of their BTC.
Maybe I’m coping but seems like a nothingburger.
— Will Clemente (@WClementeIII) July 20, 2022
The muted reaction to the sale played out differently to the announcement in February last year that Telsa had scooped up $1.5 billion in BTC to add to its balance sheet and was planning on accepting Bitcoin as payment for certain products (though this was later scrapped).
The news at the tim saw Bitcoin’s price immediately jump by almost $3,000, bringing the cryptocurrency to a new all-time high above $43,000.
Related: Bitcoin price dips under $23K after earnings report reveals Tesla sold 75% of its BTC
Swyftx’s head of strategic partnerships, Tommy Honan told Cointelegraph that Tesla’s decision to buy Bitcoin last year was “as important a moment as you can imagine for digital assets.”
“It almost gave other businesses permission to put crypto on their balance sheets and we saw a lot of big institutional investors, as well as small and mid-cap companies flood into the market from that point.”
“Musk said the sale wasn’t a verdict on Bitcoin, just a cash play, and it looks like the market has taken him at his word. Bitcoin’s price has stabilized over the last 24 hours and we’d be surprised if other big investors followed suit, especially given the current price of Bitcoin.”
US stocks slid sharply at the start of trading on Monday with the benchmark S&P 500 opening in bear market territory, as a sell-off sparked by high inflation and the prospect of aggressive central bank tightening rippled across global financial markets.
Wall Street’s S&P 500 index fell 2.4 per cent, pushing it more than 20 per cent below an all-time high set in January, a decline identified commonly as a bear market. The gauge of US stocks had briefly entered a bear market in late May, before rebounding off its lows.
The tech-heavy Nasdaq Composite dropped 2.9 per cent, taking its losses for the year to roughly 30 per cent. Speculative corners of the market have suffered acutely this year as central banks in the US and Europe begin to raise interest rates and drain liquidity from the financial system.
Bitcoin, the cryptocurrency that tends to react to broader market sentiment, traded below $24,000, having tumbled almost 20 per cent since Friday.
Analysts have upgraded their forecasts of how far the Federal Reserve will raise interest rates, with some speculating that the US central bank might implement an extra large 0.75 percentage point increase at its monetary policy meeting this week.
US consumer price inflation hit an unexpectedly high annual rate of 8.6 per cent in May, data on Friday showed, as Russia’s invasion of Ukraine raised fuel and food costs. Money markets are now pricing in a 3.4 per cent fed funds rate by December, up from a range of 0.75 per cent to 1 per cent currently.
“I think with this latest [inflation] number the Fed is really going to go for it and this will cause an economic slowdown,” said Julian Howard, lead investment director for multi-asset solutions at fund manager GAM. “It’s all looking pretty ugly in the short term and there is nowhere really to escape from it, apart from going into cash for now.”
The yield on the benchmark 10-year Treasury note, which underpins global borrowing costs, rose above 3.29 per cent to hit its highest level since 2011 as the price of the instrument fell. The two-year Treasury yield, which tracks interest rate expectations, rose 0.17 percentage points to 3.23 per cent.
US investment bank Goldman Sachs on Monday raised its Fed policy forecasts to include 0.5 percentage point increases this week and again in July, September and November, with further quarter-point rises in December and January.
“There is very little chance of the Fed pivoting to support financial markets until there is a trend of very meaningful economic disappointments,” said Seema Shah, chief strategist at Principal Global Investors.
Analysts at Barclays predicted a 0.75 percentage point increase this week. Standard Chartered strategists said, in a research note, that they would “not preclude” this outcome.
In Europe, the Stoxx 600 share index dropped 2.1 per cent, putting it on track for its fifth straight session of falls. The regional share gauge has dropped more than 9 per cent this quarter.
The yield on Italy’s 10-year bond rose 0.19 percentage points to 3.94 per cent, having more than quadrupled since mid-December. This came after the European Central Bank last week paved the way for its first interest rate rise in more than a decade.
The pound fell 1.1 per cent against the dollar to less than $1.22, depressed by a strengthening US currency and concerns about the UK economy.
Economists see the Bank of England lifting its main borrowing rate by 0.25 percentage points on Thursday, with an increasing chance of a 0.5 percentage point rise, escalating fears of stagflation.
Elsewhere, the yen touched a 24-year low of ¥135.19 per dollar as traders bet on the Bank of Japan continuing to defy the global trend towards higher interest rates. A FTSE index of Asian shares outside Japan fell 2.8 per cent.
Stock futures rose in overnight trading Sunday after the Dow Jones Industrial Average fell for its 8th straight week amid a broader market sell-off.
Futures on the Dow industrial average gained 170 points, or 0.57%. S&P 500 futures added 0.7% and Nasdaq 100 futures rose 0.7%.
The moves came after the S&P 500 on Friday dipped into bear market territory on an intraday basis. While the benchmark was down 20% at one point, it did not close in a bear market after a late-day comeback.
In Friday’s regular trading session, the S&P 500 closed 0.01% higher at 3,901.36 after falling as much as 2.3% earlier in the session. The Dow added 8.77 points at 31,261.90 after sinking as much as 600 points and the Nasdaq inched 0.3% lower.
The S&P 500 currently sits 19% off its record high while the Dow is down 15.4%. The Nasdaq is already deep in bear market territory, down 30% from its high.
Last week marked the Dow’s first eight-week losing streak since 1923, while the S&P 500 capped a seven-week losing streak, its worst since 2001.
The Nasdaq saw its seventh negative week in a row for the first time since March 2001. The tech-heavy index also saw its lowest intraday level since November 2020 on Friday.
Eight of 11 sectors ended the week in the red, led by consumer staples, which dipped 8.63% and had its worst weekly performance since March 2020. Energy finished the week on top, rising 1.09%. Consumer discretionary and communication services also finished the week more than 32% off their 52-week highs.
“Investors are trying to come to grips with what exactly is happening and always try to guess what the outcome is,” said Susan Schmidt of Aviva Investors. “Investors hate, and the markets hate uncertainty, and this is a period where they don’t have any clear indication on what’s going to happen with this push-pull between inflation and the economy.”
Investors are looking ahead to a new batch of earnings this week, including an array of big retail names. Zoom Video is set to report results Monday followed by Costco, Nvidia, Dollar General, Nordstrom and Macy’s later in the week.
U.S. stock futures edged down, putting major indexes on track to extend losses after one of Wall Street’s worst selloffs since the pandemic began.
Futures tied to the Dow Jones Industrial Average shed 0.3%, a day after the blue-chip index slumped more than 1,000 points, its worst day since 2020. S&P 500 futures edged down 0.5% while technology-heavy Nasdaq-100 futures were down 0.6%.
Stocks have been whipsawed in recent days as investors have tried to gauge what impact the Federal Reserve’s plan to raise interest rates will have on the economy. Investors are caught between competing hopes: that rate increases will be significant enough to tame rapidly rising inflation, but not so large that they will derail economic growth.
“The market is trying to balance whether central banks are more worried about inflation or about dampening growth and the market has clearly decided they are more worried about inflation,” said Altaf Kassam, head of investment strategy for Europe, the Middle East and Africa at State Street Global Advisors. “If the Fed is going to be fighting inflation at all costs then it will certainly have an impact on stocks.”
U.S. stocks rallied Wednesday after the Federal Reserve raised interest rates by half a percentage point, buoyed by relief that it wasn’t actively considering even larger increases in the future, but that relief faded Thursday as investors reassessed the outlook for stocks.
Federal Reserve Chairman Jerome Powell said Wednesday the central bank approved a half-percentage-point interest-rate increase in an effort to reduce inflation that is running at a four-decade high. Photo: Win McNamee/Getty Images
Valuations for U.S. markets have “moved from rich to very rich” in the past 10 years as stock prices have risen more than earnings, said
Frank Benzimra,
head of Asia equity strategy at Société Générale. But as interest rates climb, the value that investors place on companies’ future cash flows is decreasing, he said.
In bond markets, the yield on the benchmark 10-year U.S. Treasury note rose to 3.074% from 3.066% on Thursday, which marked its highest level since November 2018. Bond yields rise as prices fall.
One reason for the volatile swings in markets: Investors lack an obvious haven as bonds and gold have come under pressure from rising interest rates.
“To cope with this volatility you need a buffer but fixed income is not the buffer that it used to be,” said Mr. Kassam.
Brent crude, the global oil benchmark, rose 1.6% to $112.70 a barrel, extending a recent run of gains driven by expectations that the European Union was set to ban imports of Russia’s oil in response to its invasion of Ukraine. Gold prices edged up 0.2%
Bitcoin fell 0.8% to $36,152, after slumping more than 8% Thursday as the market selloff prompted investors to exit risky bets such as cryptocurrencies.
Investors were awaiting data on the state of the jobs market, a strong point for the U.S. economy with the unemployment rate close to a 50-year low. That has also driven wages higher adding to building inflationary pressures. The April jobs report, due at 8:30 a.m. ET, is expected to show another strong month for job gains.
Japanese stocks bucked the broader downtrend as the Tokyo market reopened after three days of holidays.
Photo:
kazuhiro nogi/Agence France-Presse/Getty Images
Overseas, benchmark indexes in both Asia and Europe retreated, tracking losses in the U.S., with declines most pronounced for the tech-heavy Hang Seng Index, which slumped 3.8%. In mainland China, the Shanghai Composite Index fell 2.2%. In Europe, the pan-continental Stoxx Europe 600 fell 1.2%.
Japanese stocks bucked the broader downtrend as the Tokyo market reopened after three days of holidays, with the Nikkei 225 gaining 0.7%.
Write to Rebecca Feng at rebecca.feng@wsj.com and Will Horner at William.Horner@wsj.com