Big tech weighs heavily on stocks as yields surge - BNN

Stocks tumbled around the globe as recession fears resurfaced, with the Federal Reserve struggling to get on top of inflation that’s proved more persistent and widespread than officials anticipated.

The rally that followed the Fed’s decision fizzled out, with the S&P 500 on pace for its lowest since December 2020. The tech-heavy Nasdaq 100 underperformed. Homebuilders slid as investor woes deepened with mortgage rates jumping the most since 1987 and housing starts dropping. Kroger Co. sank after the supermarket company said higher costs hurt margins. 

Treasury 10-year yields pared their rally after surging as much as 21 basis points to 3.49 per cent. The dollar fell. Bitcoin, which earlier added as much as 6.1 per cent, headed toward its longest losing streak in Bloomberg data going back to 2010.

Declaring that it’s essential to tame inflation, Jerome Powell engineered the biggest rate increase since 1994 Wednesday and held out the distinct possibility of another jumbo hike in July. While the Fed chief sought to soften the blow of the 75-basis-point boost by saying he didn’t expect moves of that size to become the norm, he effectively admitted the chance of an economic downturn.

“We’re worrying about growth and where the Fed takes us ultimately,” said Chris Gaffney, president of world markets at TIAA Bank. “Yesterday everybody said, ‘Oh good, the Fed is doing something aggressive, they’re going to get aggressive, they’ll try to catch up to the inflation curve.’ But now, you’re looking at it and saying, ‘Yeah, but are they chasing something they’re not going to be able to catch?’”

The S&P 500 now implies an 85 per cent chance of a US recession amid fears of a policy error by the Fed, according to JPMorgan Chase & Co. The warning from quant and derivatives strategists is based on the average 26 per cent decline for the gauge during the past 11 recessions and follows its collapse into a bear market amid concerns about surging inflation and aggressive rate hikes.

One technical indicator of US stocks shows the extent of the recent slump, while offering a whiff of optimism that it will soon come to an end. 

The percentage of S&P 500 members that are trading above their 50-day moving average sank below 5 per cent this week, the lowest level since COVID-19 fears battered shares more than two years ago. Both that selloff and the one that hit markets in late 2018, reversed course shortly after seeing a similar share of stocks dip below the closely watched technical average.

More comments:

• “Our main takeaway from the Fed is hawkish -- meaning the Fed is going to accept recession risk to deliver below-trend economic growth,” wrote Dennis DeBusschere, the founder of 22V Research.
• “With quantitative tightening beginning, and the Fed Funds futures market pricing in another 75 basis point hike at the next meeting, concerns are mounting about whether the Fed is headed towards a policy mistake,” said Quincy Krosby, chief equity strategist at LPL Financial.
• “The market got what it wished for, but maybe, just maybe, hiking 75 bps into a rapidly weakening economy isn’t the best idea,” wrote Peter Tchir, head of macro strategy at Academy Securities.
• “Despite their assurance, it’s unclear to me whether the Fed has the tools they say they do to tamp down prices,” said Jason Brady, chief executive officer at Thornburg Investment Management.
• “The band-aid wasn’t ripped off and, if anything, greater uncertainty about the magnitude of next moves has increased,” said Neil Campling, head of tech, media and telecom research at Mirabaud Securities

Elsewhere, investors dumped European bonds and the franc rallied after a surprise Swiss rate hike. The pound rose as the Bank of England raised rates and signaled it’s prepared to unleash larger moves if needed. Currency options traders are betting the Bank of Japan will deliver a policy surprise this week.

US officials are working to arrange a possible call this summer between President Joe Biden and Chinese President Xi Jinping, according to two people in Washington familiar with the plans -- with tensions high between the world’s two biggest economies.

Key events this week:

• Bank of Japan policy decision, Friday.
• Eurozone CPI, Friday.
• US Conference Board leading index, industrial production, Friday
• What are the next levels for the pound? UK 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 2.8 per cent as of 11:28 a.m. New York time
• The Nasdaq 100 fell 3.4 per cent
• The Dow Jones Industrial Average fell 2.1 per cent
• The Stoxx Europe 600 fell 2.2 per cent
• The MSCI World index fell 2 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.4 per cent
• The euro rose 0.6 per cent to US$1.0510
• The British pound rose 1.1 per cent to US$1.2318
• The Japanese yen rose 1.2 per cent to 132.20 per dollar

Bonds

• The yield on 10-year Treasuries advanced three basis points to 3.31 per cent
• Germany’s 10-year yield advanced five basis points to 1.70 per cent
• Britain’s 10-year yield advanced three basis points to 2.50 per cent

Commodities

• West Texas Intermediate crude fell 0.3 per cent to US$114.95 a barrel
• Gold futures rose 1.4 per cent to US$1,845 an ounce

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2022-06-16 15:08:54Z
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