US stocks fell, with technology stocks leading the way as investors assessed the effects of the Federal Reserve’s most aggressive tightening of monetary policy in more than two decades.
The S&P 500 fell 2.1% at the start of trading on Thursday. The technology-focused Nasdaq Composite Index lost 3.2 percent and the Dow Jones Industrial Average fell 1.6 percent, or 551 points.
In the bond market, yields on benchmark 10-year government securities rose to 3.021%, from 2.914% on Wednesday. Bond prices and yields are moving in opposite directions. On Wednesday, the bonds bounced along with the shares before they expired.
The withdrawal came a day after major US stock indexes jumped, with the Dow rising more than 900 points, its biggest one-day gain since 2020. On Wednesday, central bank officials approved a half-percent increase, raising the federal rate. of funds up to a target range between 0.75% and 1%.
But it was Fed Chairman Jerome Powell who boosted markets after saying employees were not considering actively raising interest rates by three-quarters of a percentage point. Instead, he pointed out that additional increases of half a point could be justified at the upcoming meetings.
Mr Powell’s comments offered relief to investors, who increasingly feared the Fed could raise interest rates too far, too quickly and ultimately turn the economy into recession.
By Thursday, investor optimism began to wane. Even with a larger rate hike that is not on the table in the coming months, investors are still facing the most aggressive tightening of US monetary policy since 2000 – the last time the central bank last raised interest by half a point. Many investors now doubt how high the Fed can raise interest rates over the next two years amid rising inflation and how this could develop in the economy and corporate profits.
“Yesterday’s market was a relief,” said Siema Shah, chief strategist at Principal Global Investors. However, by Thursday, she said, the realities of a more challenging stock environment began to be established. Although she said she believes inflation has peaked or is nearing a peak, other macroeconomic considerations will continue to weigh on investors and the path of interest rates, she said.
“Given all external factors – mainly the blocking of Covid-19 in China, the escalation of supply chain problems and the Russia-Ukraine conflict, which will lead to higher energy prices, there is a lot of uncertainty,” she said. .
Federal Reserve Chairman Jerome Powell said Wednesday that the central bank has approved a half-percentage point increase in interest rates in a bid to cut inflation, which has been peaking for four decades. Photo: Win McNamee / Getty Images
On Thursday morning, these worries were noticed throughout the market. Growth stocks were particularly hard hit. Chipmakers Advanced Micro Devices, Nvidia and NXP Semiconductors fell at least 2.8 percent. Shares of Megacap’s technology also fell, with Meta Platforms down 1.7 percent and Netflix down 4.6 percent.
Higher interest rates can reduce the attractiveness of technology stocks by reducing the value that investors attach to their future profits. Higher incomes in general also increase the attractiveness of fixed income products to riskier assets such as stocks.
Following the trend, shares of Twitter jumped 4% to $ 51.02 after Tesla CEO Elon Musk said he had received letters from investors committing more than $ 7 billion in new funding to increase the stake. your offer to buy the social media company. Last month, Twitter agreed to make a deal with Mr. Musk to make the company private for $ 54.20 a share.
Booking Holdings jumped 6.3% after its revenues exceeded expectations and said they had seen global travel trends intensify in the current quarter.
Etsy fell 17% after the online market posted guidance below expectations for the current quarter.
Shares of Wayfair also fell, losing 20% after the online home retailer reported a larger-than-expected quarterly loss. Shopify’s first-quarter earnings fell short of analysts’ expectations, causing shares to fall 17%.
Traders worked on the floor of the New York Stock Exchange on Wednesday.
Photo: Justin Lane / Shutterstock
Assets that investors see as safer were among those that rose on Thursday as money managers sought refuge as stocks and bonds fell in tandem. Even after Wednesday’s rally, some strategists and investors said they were hesitant about the stock market’s prospects in the coming weeks and months.
“We are struggling to see who will become a huge share buyer in the next few weeks,” said Viraj Patel, a global macro strategist at Vanda Research. “It’s a waiting game for this catalyst. You need more reassurance from the data, or to show that inflation has peaked, or the economy is slowing, and the Fed won’t need to be so aggressive.”
The WSJ Dollar index, which measures the US currency against a basket of 16 others, rose 0.9%. On Wednesday, the index fell 0.9%, its biggest drop since November 2020. The dollar’s status as a global reserve currency makes it a particularly attractive haven for investors.
Gold prices, another preferred haven, also rose, rising 1.6 percent to $ 1,898.40 an ounce.
The British pound fell 2% against the dollar to $ 1.2378 after the Bank of England raised interest rates, but signaled that it is likely to move cautiously in the coming months as worries grow from the recession.
In the oil markets, crude Brent, the international benchmark for oil, rose 2.7% to $ 113.02 a barrel. On Wednesday, Brent registered its biggest one-day profit in more than three weeks after the European Union proposed a ban on imports of Russian crude oil for six months and refined petroleum products from the country until the end of the year. The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC +, are expected to meet on Thursday to discuss production targets.
Overseas, the continental Stoxx Europe 600 rose 0.7%. Banks, technology stocks and transport companies were among those that rose. Italian bank UniCredit rose 5.3% after its revenues exceeded analysts’ expectations. Airbus jumped 7.3% after the aircraft maker reported an increase in net income and set out to increase production of its best-selling A320 by one lane.
Shell gained 3.7% after its first-quarter profit growth, boosted by rising commodity prices.
In Asia, Hong Kong’s Hang Seng fell 0.4 percent and Shanghai Composite rose 0.7 percent. Markets in Japan were closed for the holiday.
Write to Caitlin McCabe at caitlin.mccabe@wsj.com
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