On Friday, the yield on two-year government securities jumped to 3.06%, about a quarter of a point, while the yield on 10-year bonds rose to 3.16%, about a tenth of a point.
Ultimately, investors are concerned about how high prices and rising borrowing costs will affect consumer spending and corporate profits. Underwriting the costs would affect the company’s profits, but passing them on could worsen economic problems, said Jung-Yu Ma, chief investment strategist at BMO Wealth Management in the United States.
“This is a very difficult time,” Mr Ma said. Most companies are unlikely to keep their profit margins ahead of rising energy costs, he said. Stock market analysts are doing what Mr Ma called “wildly optimistic” earnings forecasts, which he says are likely to be revised in the coming months and ultimately reflected in lower stock prices.
This week, Target shares fell after lowering its earnings forecast for the second time in three weeks as inflation and changes in customer habits hurt its margins and left it with too many unsold stocks that it said it would try to sell at a discount.
The S&P 500 is now down 18.7 percent from its January 3 record, bringing it back into bear market territory – a 20 percent drop from the highest level – signaling a major shift in Wall Street investor sentiment. The index briefly fell in bearish territory last month before recovering to close slightly above this psychologically significant level.
Phil Orlando, chief capital strategist at Federated Hermes, an asset management company, said in an interview that he expects the market to fall further, perhaps 10 percent lower than current levels this summer. He prefers so-called stocks, such as those in the energy, financial and healthcare industries, to growth stocks, such as technology companies, because they have cheaper valuations and more promise in this environment.
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