Stocks Wipe Out 1% Rally as Fedspeak Boosts Yields: Markets Wrap

It was another down day for stocks, with Treasury yields climbing amid hawkish remarks from Federal Reserve officials and swaps pricing in a 5% peak policy rate in 2023. The pound wavered after Liz Truss resigned as UK prime minister.

(Bloomberg) — It was another down day for stocks, with Treasury yields climbing amid hawkish remarks from Federal Reserve officials and swaps pricing in a 5% peak policy rate in 2023. The pound wavered after Liz Truss resigned as UK prime minister.

The wariness around economic challenges has been so pronounced that it doesn’t take much to see the S&P 500 dropping at least 1% after posting a rally of the same magnitude earlier in the day. It happened again Thursday, with the gauge seeing intraday swings of that size in both directions for the 16th time in 2022 — the most for any year since the financial crisis.

Volatility is showing no signs of abating ahead of Friday’s $2 trillion options expiration and another raft of corporate earnings. In late trading, Snap Inc. plummeted after reporting its slowest quarterly sales growth ever, saying that a decline in advertising spending on the platform continues to drag on results.

A tech-led advance in equities quickly fizzled out Thursday after Philadelphia Fed chief Patrick Harker said policymakers are likely to raise rates to “well above” 4% this year and hold them at restrictive levels, while leaving the door open to doing more if needed. The current benchmark sits between 3% and 3.25%. Fed Governor Lisa Cook also spoke, noting that rates will need to keep rising to get inflation under control.

“Stocks are not out of the woods yet,” said Fawad Razaqzada, market analyst at City Index and Forex.com. “Fears over further tightening of central bank policy amid an environment of high-inflation and low-growth means investors will avoid buying stocks aggressively. Even at these relatively-inexpensive levels.”

Traders also scoured a mixed bag of quarterly results, with Tesla Inc.’s sales disappointing and International Business Machines Corp. topping forecasts. Several market observers said the bar has been lowered quite a bit ahead of the earnings season, boosting the odds of upside surprises. It’s also worth noting that there’s been no shortage of warning signals about the economy from the corporate side.

Alcoa Corp. joined metals higher, but its quarterly loss indicated a worsening environment for a company that recently said it was being squeezed by higher costs and falling aluminum prices. And that’s a dependable barometer of the health of sectors including construction, aerospace and consumer packaging. Another worrisome signal came from Union Pacific Corp., which sees slowing freight demand.

As traders wade through corporate results, “with an extra eye on guidance, expect volatility to remain elevated,” said Mike Loewengart at Morgan Stanley Global Investment Office.

The latest batch of economic reports didn’t provide much encouragement either, with sales of previously owned US homes down for an eighth straight month — underscoring how soaring mortgage rates are punishing the housing market. The stretch of declines is the longest since 2007, when a housing market collapse swept the economy into the Great Recession.

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 0.8% as of 4 p.m. New York time
  • The Nasdaq 100 fell 0.5%
  • The Dow Jones Industrial Average fell 0.3%
  • The MSCI World index fell 0.6%

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro rose 0.1% to $0.9784
  • The British pound was little changed at $1.1227
  • The Japanese yen fell 0.2% to 150.15 per dollar

Cryptocurrencies

  • Bitcoin fell 0.7% to $19,066.28
  • Ether fell 0.8% to $1,284.5

Bonds

  • The yield on 10-year Treasuries advanced nine basis points to 4.23%
  • Germany’s 10-year yield advanced three basis points to 2.40%
  • Britain’s 10-year yield advanced three basis points to 3.91%

Commodities

  • West Texas Intermediate crude rose 0.5% to $85.98 a barrel
  • Gold futures fell 0.2% to $1,631.40 an ounce

–With assistance from Vildana Hajric, Peyton Forte and Matt Turner.

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

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