US stocks sank after two days of losses sparked by Federal Reserve comments that it intends to keep rates elevated for an extended period.
(Bloomberg) — US stocks sank after two days of losses sparked by Federal Reserve comments that it intends to keep rates elevated for an extended period.
The S&P 500 and the tech-heavy Nasdaq 100 dropped as much as 1.5% and 1.8%, respectively. Treasuries yields climbed after an unexpected rebound in August consumer confidence sparked a selloff and pushed the two-year rate to a new multiyear high.
Macro news has been scant since Fed Chair Jerome Powell made clear his intention to bring down inflation. Richmond Fed President Thomas Barkin and his New York counterpart John Williams restated those claims on Tuesday. A reading on job openings Tuesday added to signs that the labor market remains tight and wage pressures persist. Jobless claims will air Thursday before Friday’s August payrolls report.
“Market volatility is a sign the market is doing exactly what it’s supposed to be doing — it’s incorporating all these changes in expectations,” said Wes Crill, head of investments strategists and VP at Dimensional Fund Advisors. “We could well be coming out of this decline, out of the bear market, but we’re still going to have these negative days, we’re still going to have market volatility. And that’s because there’s so much news to process.”
Analysts remain mixed on what recent remarks by Fed officials and upcoming data could mean for stocks. While Credit Suisse Group AG recommended investors go underweight global equities following the Jackson Hole symposium, JPMorgan Chase & Co. strategists say that a reading on the US labor market that spells bad news for the economy is actually a bullish signal for stocks.
Meanwhile, bonds are sliding toward the first bear market in a generation, burning investors who erred in bets that central banks would pivot away from rapid interest-rate hikes.
The Fed this week is also set to step up the unwinding of its near-$9 trillion balance sheet. The impact of quantitative tightening is going to be relatively benign for the first six to 12 months, but could start to amplify its effects on the economy around the middle part of next year, Jeff Schulze, investment strategist at ClearBridge Investments, said in an interview.
Other risks range from China’s economic slowdown to an energy crisis that threatens to tip Europe into recession with winter approaching.
Here are some key events to watch this week:
- ECB Governing Council members due to speak at event Tuesday through Sept. 2
- China PMI, Wednesday
- Euro-area CPI, Wednesday
- Russia’s Gazprom set to halt Nord Stream pipeline gas flows for three days of maintenance, Wednesday
- Cleveland Fed President Loretta Mester due to speak, Wednesday
- China Caixin manufacturing PMI, Thursday
- US nonfarm payrolls, Friday
- UK leadership ballot closes Friday. Winner announced Sept. 5
Will Chinese sovereign bonds outperform Treasuries? China is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.8% as of 11:34 a.m. New York time
- The Nasdaq 100 fell 1%
- The Dow Jones Industrial Average fell 0.6%
- The Stoxx Europe 600 fell 0.6%
- The MSCI World index fell 1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.3% to $1.0025
- The British pound fell 0.4% to $1.1668
- The Japanese yen was little changed at 138.65 per dollar
Bonds
- The yield on 10-year Treasuries advanced one basis point to 3.11%
- Germany’s 10-year yield was little changed at 1.51%
- Britain’s 10-year yield advanced 10 basis points to 2.70%
Commodities
- West Texas Intermediate crude fell 4.6% to $92.55 a barrel
- Gold futures fell 0.8% to $1,736.30 an ounce
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