Equities falter as investors reduce risk

Investors’ conviction that the Federal Reserve must raise interest rates several times this year to fight inflation has pushed equities. Last week, Fed Chairman Jerome Powell called rapid inflation a “serious threat” to a full economic recovery, and data showed that consumer prices rose by 7% compared to the year in December. But even with increases, interest rates will remain close to historically low levels, which investors hope will strengthen markets.

“The Fed says̵[ads1]7; OK, zero interest rates do not make sense here, so we’ll go back to something more sensible,” said Jonathan Golub, head of US equities strategist and head of quantitative research at Credit Suisse. “They are not really hiking, but signals that a great rate of change is coming. “

Mr. Golub remains optimistic about the stock markets, citing a year-end price target of 5,200 points for the S&P 500, about 5.3% higher than other Wall Street strategists’ targets. He looks at the earnings season to learn more about whether estimates will beat or be embedded, since they will no longer be compared to pandemic lows.

Cryptocurrencies fell, and bitcoin lost around 6.6% compared to the level 24 hours earlier, trading around $ 38,644. Ether fell 8.9%.

The price of oil also fell. Global benchmark index Brent oil fell 0.9% and traded at 87.69 dollars a barrel, weighed down by a surprising increase in US crude oil stocks, according to analysts at RBC Capital Markets.

The possibility of interest rate increases has particularly affected speculative and high-flying growth stocks and put Nasdaq in correction territory. Many investors dump shares in unprofitable companies.

Netflix shares plunged 20% after the company said it expected a decline in subscriber growth. The peloton rose 11%, recovering some losses after the stock fell almost 24% on Thursday after reports that the affiliated training company stopped production. Its CEO denied these allegations.

“When we return to a more normal world, names like Peloton and Netflix that are weaker or disappointing are not a surprise,” said Arun Sai, a multi-asset strategist at Pictet Asset Management. “I think that when the dust settles, we will have a reasonable set of figures in Q4 revenues. Peloton and Netflix are more of a distraction than anything else. “

Consumer staples, but benefits from rising rates. The sector rose as much as 0.9 percent on Friday. Clorox Co.

added 1.7%, Colgate-Palmolive Co.

received 1.4% and Procter & Gamble Co.

rose 0.7 percent.

Investors’ investments in faster interest rate increases have driven up inflation rates on bonds, seen as a measure of financing costs. The interest rate on the 10-year inflation-protected government bond rose as high as minus 0.526% on Friday, the highest level since June 2020, before falling slightly to minus 0.557%. The yield on the benchmark index for 10-year government bonds fell to 1.761% from 1.833% on Thursday. Tensions between Russia and NATO also weigh on market sentiment, investors said.

«Geopolitical risk plays a role, re-pricing of [central bank] Politics plays a role and the inflation mix in the sense of cost pressure. You put all of these together, and it’s actually a pretty big change, “said Georgina Taylor, a multi-asset fund manager at Invesco.” The risk premium for stocks needs to go up. “

Abroad, US-listed shares in the wind power company Siemens Gamesa Renewable Energy fell 12% after it had an operating loss and lowered guidance, citing supply chain restrictions. The shares of some Chinese medicine manufacturers rose after they were selected to help make cheaper versions of Merck’s Covid-19 pill. BrightGene Bio-Medical Technology rose 20%, and Viva Biotech advanced 14%.

Shares in the Asia-Pacific and Europe largely withdrew. The pan-continental Stoxx Europe 600 fell 2%, while China’s Shanghai Composite Index and Japan’s Nikkei 225 fell 0.9%.

—Dave Sebastian contributed to this article.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Hardika Singh at hardika.singh@wsj.com