The stock market saw a lot of instability, with traders weighing whether prospects for a soft landing are still on the table amid the Federal Reserve’s most-aggressive tightening campaign in a generation.
(Bloomberg) — The stock market saw a lot of instability, with traders weighing whether prospects for a soft landing are still on the table amid the Federal Reserve’s most-aggressive tightening campaign in a generation.
Wall Street didn’t get much reassurance from the latest raft of economic reports — which were mixed at best. A rally of almost 1% in the S&P 500 fizzled out, with the gauge back below its key 4,000 level and heading toward a fifth straight day of losses — the longest losing streak since December.
The main culprits: the same megacap group that earlier drove the market higher, with losses in Apple Inc. and Tesla Inc. weighing heavily on trading. Netflix Inc. tumbled on plans to cut the price of subscriptions in over 100 countries, while EBay Inc. plunged as its outlook suggested that a sales comeback will take longer. A bullish revenue forecast from Nvidia Corp. spurred a surge of as much as 15% for the shares.
Retail traders have retaken a bearish view that dominated their outlook for much of last year after a raucous stock rally hit a wall this month. Following two weeks of tepid optimism, the bull-bear spread from the American Association of Individual Investors survey flipped to -17 in the week ending Feb. 22, the most pessimistic stance since the start of the year.
“We haven’t seen that phenomenal rally from the start of the year continue just because the market is fretting over the Federal Reserve having to raise interest rates for longer,” said Fiona Cincotta, senior financial markets analyst at City Index. “That’s obviously hitting risk sentiment and hurting demand for stocks.”
Billionaire quant investor Cliff Asness warned that US stocks are vulnerable to a macro shock if inflation doesn’t stage a spirited decline as the market expects. The co-founder of AQR Capital Management told Bloomberg Television that despite last year’s declines, equities remain expensive versus history, based on a broad assumption that price growth is set to slow.
The US economy has obstacles to overcome, though there’s still a chance for a soft landing, Jamie Dimon said. “The US economy right now is doing quite well — consumers have a lot of money, they’re spending it, jobs are plentiful,” the JPMorgan Chase & Co.’s chief told CNBC. “Out in front of us there’s some scary stuff.”
US growth in the fourth quarter was weaker than previously estimated and the Fed’s preferred inflation figures were revised higher. While the rapid slowdown in personal spending spurred concerns about the health of American consumers, it also bolstered hopes the economy was slowing in a way that could be consistent with a soft landing. Separate data showed unrelenting tightness in the labor market.
To Michael Shaoul at Marketfield Asset Management, investors are caught between welcoming the evidence that the US economy remains on a stable footing and fearing that this resilience will provoke a stern reaction from policymakers.
“Granted things could be worse, the specter of a rapid deterioration of the economic cycle appears to have been banished, with recent economic data and corporate earnings both confirming that although growth has decelerated from the stimulus driven boom, we have not entered a period of obvious weakness,” he added.
In other corporate news, Domino’s Pizza Inc. tumbled the most in more than a decade as delivery woes and softening demand caused fourth-quarter sales to trail Wall Street expectations and led management to cut targets for revenue growth. Moderna Inc. kept its forecast for at least $5 billion in sales of its Covid-19 vaccine this year, well short of analysts’ estimates.
Elsewhere, Bitcoin is on pace for its second monthly advance, breaking with stocks and other riskier assets that have slid amid renewed concern about rising interest rates. The crypto market’s rally recovers only a sliver of the ground lost last year, when prices tumbled and the collapse of the FTX exchange caused a pullback by investors.
Key events this week:
- BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday
- US PCE deflator, personal spending, new home sales, University of Michigan consumer sentiment, Friday
- Russia’s invasion of Ukraine hits the one-year mark, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.3% as of 1:27 p.m. New York time
- The Nasdaq 100 fell 0.2%
- The Dow Jones Industrial Average fell 0.5%
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.2% to $1.0584
- The British pound fell 0.3% to $1.2004
- The Japanese yen was little changed at 134.82 per dollar
Cryptocurrencies
- Bitcoin was little changed at $23,809.33
- Ether rose 1.5% to $1,643
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.90%
- Germany’s 10-year yield declined four basis points to 2.48%
- Britain’s 10-year yield declined one basis point to 3.59%
Commodities
- West Texas Intermediate crude rose 1.9% to $75.36 a barrel
- Gold futures fell 0.8% to $1,827 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jessica Menton and Isabelle Lee.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.