Shares fall as bond yields reach two-year highs
US stock indices fell on Tuesday and bond yields peaked in two years, as investors worried about whether the Federal Reserve would raise interest rates faster and more aggressively than expected.
Investors, who came after a holiday weekend that had closed markets on Monday, sold shares across the board. All three indices fell, with the S&P 500 falling 1.5%, the Dow Jones Industrial Average falling 1.5% and the Nasdaq Composite falling 1.7%.
Equities and bonds have been in a state of turmoil since the beginning of the year, with all three benchmarks down by at least 2.7% so far in 2022. The question is how much and how quickly the Federal Reserve will act in an attempt to curb violent inflation, with investors increasingly convinced that the central bank will act more forcefully.
Interest rate futures markets indicate that investors are now betting on four to five interest rate increases this year, up from three to four on Friday, according to CME Group.
“Markets are still trying to find a level of interest rate hikes. It was not until October that the market expected one rate hike for 2022, and now four are expected,”[ads1]; said Edward Park, chief investment officer at British investment firm Brooks Macdonald. in the market right now about the path to Fed policy. “
This has led to investors dumping equities this year, with some of the hardest selling focused on high-growth equities, whose earnings will look less attractive in an environment of rising prices. The share of technology and communication services fell by 1.5% and almost 2%, respectively. Metaplatforms,
Facebook’s parent and Microsoft both fell more than 3%. Netflix and Alphabet fell over 2%.
The Cboe Volatility Index – Wall Street’s so-called fear meter, also known as the VIX – rose to 22.35, the highest level in a month.
Meanwhile, the return on the benchmark index for 10-year government bonds rose to 1.843% – the highest level in two years – from 1.771% on Friday, pushing down bond prices.
The last quarterly earnings season has not helped. Several financial companies have reported results that show that profits have begun to ebb at some large banks that had benefited from the tumultuous pandemic economy. Goldman Sachs was the last to report on Tuesday, showing a decline in fourth-quarter earnings, sending shares down 7.6% and serving as a major drag on the price-weighted Dow.
Financial equities followed suit, with shares in the S&P 500 falling 2.2%. The online brokerage house Charles Schwab fell 5.6% after the company reported profits in the fourth quarter that rose, but fell below analysts’ estimates.
Meanwhile, shares of Activision Blizzard shot up nearly 30% after Microsoft agreed to buy the video game’s heavyweights, which have been plagued by allegations of fraudulent behavior in the workplace. Microsoft shares were flat in recent trading. Other gaming stocks rose, including Electronic Arts, which rose 6.4%.
Investors expect the Federal Reserve to implement several rate hikes this year.
Photo:
timoteus a. clary / Agence France-Presse / Getty Images
Oil prices rose as geopolitical tensions in the Middle East increased concerns about tight supplies, sending shares to energy companies up 0.4%, the only S&P 500 sector in positive territory on Tuesday.
Futures for West Texas Intermediate, the mainstay of U.S. crude oil, rose 2% to $ 84.96 a barrel. If the contracts go above $ 84.65 per barrel, it will mark their highest end level since October 2014. Yemen’s Iran-backed Houthi rebels said they were behind airstrikes in the United Arab Emirates on Monday, as intensifying fighting spills throughout the region.
Abroad, the pan-continental Stoxx Europe 600 fell 1%, with the largest losses in the technology and travel and leisure sectors. Shares in GAM Holding fell 14% after the Swiss asset management company said it would have a net loss for 2021 equivalent to around $ 33 million.
Major indices in Asia closed largely lower, although China’s Shanghai Composite counteracted the trend, adding 0.8%. South Korea’s Kospi fell 0.9%, Japan’s Nikkei 225 fell 0.3% and Hong Kong’s Hang Seng fell 0.4%.
The US dollar last year saw its largest increase in value since 2015. It is good for many US consumers, but it can also put a dent in equities and the US economy. WSJs Dion Rabouin explains. Photo illustration: Sebastian Vega / WSJ
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com
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