A selloff in tech stocks weighed heavily on trading Wednesday, with the most-recent string of Federal Reserve speakers reinforcing the idea that interest rates will need to keep climbing to quash inflation.
(Bloomberg) — A selloff in tech stocks weighed heavily on trading Wednesday, with the most-recent string of Federal Reserve speakers reinforcing the idea that interest rates will need to keep climbing to quash inflation.
While that’s all going to be data-dependent as Jerome Powell has signaled, markets are still very vulnerable to rate volatility, said Nicholas Colas at DataTrek. Fed Bank of New York President John Williams noted that official peak-rate forecasts are “very reasonable,” adding that policy may need to be restrictive for a few years. Fed Governor Lisa Cook echoed his comments, saying: “we are not done yet.”
While Powell has in recent weeks brushed off the market rally, other policymakers may embrace tougher talk to put a lid on equity gains, warned Lisa Shalett at Morgan Stanley Wealth Management. The recent rally in stocks in the face of worsening earnings and economic expectations has produced “massive disconnects” that threaten market stability, she noted.
“Even though we shifted early this year from ‘cautious’ to ‘cautiously constructive,’ adding back to stocks for the first time in 18 months, we continue to expect market volatility ahead as news flow on earnings, inflation, the economy and Fed bounces from bullish to bearish and back again,” wrote Stephen Auth, chief investment officer of equities at Federated Hermes.
The S&P 500 came back down following a rally that recently put the benchmark in overbought territory. The Nasdaq 100 underperformed, with Google’s parent Alphabet Inc. tumbling over 8% on concerns that its new artificial intelligence chatbot Bard may yield inaccurate responses. Some of other megacaps like Amazon.com Inc. and Meta Platforms Inc. also slumped, though a rally in Microsoft Corp. had the software giant’s market value topping $2 trillion.
Traders continued buying a put spread in Secured Overnight Financing Rate options targeting a 6% Fed policy rate by September. That’s almost a full percentage point more than the 5.1% level priced into swaps and well above the current benchmark range between 4.5% and 4.75%. Such hawkish positioning is the latest in a series of big wagers that show no signs of letting up even as the Fed has slowed down a tightening cycle that has been the fastest since the early 1980s.
Corporate Highlights:
- Chipotle Mexican Grill Inc.’s key measure of sales fell short of Wall Street’s expectations, showing that stubbornly high inflation is having an impact on the burrito chain’s operations.
- Uber Technologies Inc. reported revenue that beat estimates, suggesting rising inflation hasn’t kept consumers from ordering more takeout or hailing a ride.
- Under Armour Inc. raised its profit forecast after a strong holiday season and better-than-expected inventory management.
- Yum! Brands Inc. reported profit that exceeded estimates as the company’s Taco Bell business pulled in consumers who may be trading down due to inflation.
- New York Times Co. reported fourth-quarter sales and profit that beat analysts’ expectations, helped by accelerating growth of its digital subscriptions.
Elsewhere, Turkey’s stock exchange suspended trading for the first time in 24 years following a selloff that erased billions of dollars from the value of its main equities gauge in the wake of two devastating earthquakes. Trading in Turkish equities, futures and option contracts will resume on Feb. 15.
Key events:
- US initial jobless claims, Thursday
- ECB President Christine Lagarde participates in EU leaders summit, Thursday
- Bank of England Governor Andrew Bailey appears before Treasury Committee, Thursday
- US University of Michigan consumer sentiment, Friday
- Fed’s Christopher Waller and Patrick Harker speak, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.1% as of 11:28 a.m. New York time
- The Nasdaq 100 fell 1.9%
- The Dow Jones Industrial Average fell 0.6%
- The Stoxx Europe 600 rose 0.3%
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was little changed at $1.0721
- The British pound rose 0.1% to $1.2066
- The Japanese yen fell 0.3% to 131.43 per dollar
Cryptocurrencies
- Bitcoin fell 2.1% to $22,719.55
- Ether fell 2% to $1,635.33
Bonds
- The yield on 10-year Treasuries was little changed at 3.68%
- Germany’s 10-year yield advanced two basis points to 2.37%
- Britain’s 10-year yield was little changed at 3.32%
Commodities
- West Texas Intermediate crude rose 0.3% to $77.36 a barrel
- Gold futures rose 0.2% to $1,887.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Peyton Forte.
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