(Bloomberg) — Stocks slumped as disappointing results from two Wall Street heavyweights added to recession worries, while bets the Federal Reserve will intensify its fight against inflation pushed a dollar gauge to a record.
Equities pushed lower after briefly paring losses when Fed Governor Christopher Waller said he supports a 75-basis-point hike in July, but could vote for more if data show further inflation risks. Traders reduced bets slightly on a 100-basis-point move.
“We do not believe investors should start to get overly bullish if the Fed becomes less hawkish at some point this summer or early fall,” wrote Matt Maley, chief market strategist at Miller Tabak. “Yes, if they completely pivot,” he added, “THAT will be a time to become much more constructive on the stock market.”
Traders got another reality check Thursday, with JPMorgan Chase & Co. temporarily halting buybacks as earnings fell short of estimates, and Morgan Stanley announcing a plunge in investment-banking revenues.
JPMorgan’s boss Jamie Dimon, who has told investors to brace for an economic “hurricane,” noted he sees a “serious set of issues” clouding the economic outlook. Meantime, Morgan Stanley’s chief James Gorman said a deep or dramatic recession in the US is unlikely, and the bank is “long the US” in most of its businesses.
Read: Fed’s Collins Says Addressing Too-High Inflation Is Key Priority
A key measure of US wholesale and business prices jumped by more than forecast, though some signs of cooling inflationary pressures began to emerge. Over the last several weeks, measures of food, raw industrial materials and oil fell sharply. Nonetheless, it may take months before inflation moderates at the household level.
Mortgage rates in the US rose, resuming an upward climb that threatens to further cool the housing market. The average for a 30-year loan jumped to 5.51% from 5.3% last week, Freddie Mac said in a statement Thursday. It’s up from 3.11% at the end of last year.
Shrinking the Fed’s $8.9 trillion balance sheet will have an effect over time equivalent to no more than three quarter-point interest-rate hikes, according to a new study by a Fed Bank of Atlanta economist. That suggests the asset reductions will have a relative modest effect compared to rate hikes to counter inflation.
“We remain skeptical that the Fed can pull off simultaneously normalizing its balance sheet, controlling inflation, and avoiding severe market disruptions,” said Richard Saperstein, chief investment officer at Treasury Partners. “We’re increasingly concerned that investors may be forced to endure more downside volatility in this tricky environment.”
Elsewhere, cryptocurrency lender Celsius Network Ltd. filed for Chapter 11 bankruptcy, but Bitcoin took the news in stride. The digital token may be regaining its long-touted appeal as an inflation hedge.
Read: SEC Weighs Waiving Some Rules to Regulate Crypto, Gensler Says
What to watch this week:
- China GDP, Friday
- US business inventories, industrial production, University of Michigan consumer sentiment, Empire manufacturing, retail sales, Friday
- G-20 finance ministers, central bankers meet in Bali, from Friday
- Atlanta Fed President Raphael Bostic speaks, Friday
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Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.5% as of 12:50 p.m. New York time
- The Nasdaq 100 fell 1.1%
- The Dow Jones Industrial Average fell 1.6%
- The MSCI World index fell 1.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.8%
- The euro fell 0.6% to $0.9994
- The British pound fell 0.8% to $1.1788
- The Japanese yen fell 1.1% to 138.96 per dollar
Bonds
- The yield on 10-year Treasuries advanced four basis points to 2.98%
- Germany’s 10-year yield advanced three basis points to 1.18%
- Britain’s 10-year yield advanced four basis points to 2.10%
Commodities
- West Texas Intermediate crude fell 1.8% to $94.57 a barrel
- Gold futures fell 1.8% to $1,704.60 an ounce
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