Shares fall as investors reconsider Fed comments

In the bond market, the return on the benchmark index for 10-year government bonds rose to 3.021%, from 2.914% on Wednesday. Bond prices and returns are moving in opposite directions. On Wednesday, bonds recovered along with equities before losing momentum.

The withdrawal came one day after major US stock indices rose, with the Dow index climbing more than 900 points, the biggest one-day gain since 2020. On Wednesday, central bank officials approved a half-percentage point rate hike, which lifted the federal government. -Fund rate to a target range between 0.75% and 1[ads1]%.

But it was Fed Chairman Jerome Powell who gave energy to the markets after he said that officials did not actively consider raising interest rates by three quarters of a percentage point. He indicated instead that further half-point increases could be justified at upcoming meetings.

Mr. Powell’s comments provided relief to investors who had become increasingly afraid that the Fed could raise interest rates too much, too quickly and eventually tip the economy into a recession.

On Thursday, investor optimism had begun to wane. Even with a larger rate hike off 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 rates by half a point. Many investors are now questioning how high the Fed can raise interest rates over the next two years in the midst of soaring inflation, and how it could surge over the economy and corporate profits.

“Yesterday’s market was a relief rally,” said Seema Shah, chief strategist at Principal Global Investors. But by Thursday, she said, the realities of a more challenging environment for equities began to set in. Although she said she believes inflation has reached or is nearing its peak, other macroeconomic considerations will continue to thin investors and interest rates, she said.

“Given all the external factors – mainly the Covid-19 shutdowns in China, the intensification of supply chain issues and the Russia-Ukraine conflict that will drive energy prices higher … there is a lot of uncertainty,” she said.

On Thursday morning, these tremors were seen all over the market. Growth stocks were particularly hard hit. Chip manufacturers advanced micro devices,

Nvidia and NXP Semiconductors all fell by at least 2.8%. Megacap technology stocks also retreated, with Meta Platforms down 1.7% and Netflix down 4.6%.

Higher interest rates can reduce the lid on technology stocks by reducing the value that investors place on their future earnings. Higher returns generally also increase the attractiveness of fixed income products versus more risky assets such as equities.

Contrary to the trend, shares of Twitter rose 4% to $ 51.02 after Tesla CEO Elon Musk said he had received letters from investors committing to more than $ 7 billion in new financing to increase the share of his offer about buying the company for social media. Last month, Twitter agreed to a deal with Mr. Musk to take the company private for $ 54.20 per share.

Booking Holdings jumped 6.3% after revenues exceeded expectations, and they said they have seen a strengthening of global travel trends in the current quarter.

Etsy fell 17% after the online market issued guidance below expectations for the current quarter.

Shares in Wayfair also fell, losing 20%, after the online store for home products posted a larger quarterly loss than expected. Shopify‘s

Earnings in the first quarter fell short of analysts’ expectations, which led the stock to plunge 17%.

Assets that investors perceive as safer were among those that went up on Thursday when money managers looked for refuge when stocks and bonds fell in line. Even after Wednesday’s rally, some strategists and investors said they were hesitant about the stock market’s prospects in the weeks and months ahead.

“We’re struggling to see who’s going to be a massive buyer of stocks over the next couple of weeks,” said Viraj Patel, global macro strategist at Vanda Research. “It’s a wait for that catalyst … You need more conviction from the data, either to show that inflation has peaked or the economy is slowing down and that the Fed does not need to be as aggressive.”

The WSJ Dollar Index, which measures the US currency against a 16-second curve, rose 0.9%. On Wednesday, the index fell 0.9%, the largest decline since November 2020. The dollar’s status as the world’s reserve currency makes it a particularly attractive haven for investors.

Gold prices, another preferred refuge, also rose, rising 1.6% to $ 1,898.40 per troy 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 concerns grow over a fall in recession.

In the oil markets, Brent oil, the international benchmark for oil, rose 2.7% to $ 113.02 a barrel. On Wednesday, Brent recorded its biggest one-day gain in more than three weeks after the EU proposed a ban on imports of Russian crude oil within six months and on refined oil products from the country by the end of the year. The Organization of the Petroleum Exporting Countries and their allies, collectively known as OPEC +, are expected to meet on Thursday to discuss production targets.

Abroad, the pan-continental Stoxx Europe 600 rose 0.7%. Banks, technology stocks and transport companies were among those who picked up. The Italian bank UniCredit climbed 5.3% after revenues exceeded analysts’ expectations. Airbus jumped 7.3% after the aircraft manufacturer reported an increase in net revenue and went on to increase production of its best-selling A320 aircraft immediately.

Shell rose 3.7% after the profit in the first quarter increased, strengthened by rising commodity prices.

In Asia, Hong Kong’s Hang Seng fell 0.4% and the Shanghai Composite rose 0.7%. The markets in Japan were closed due to a holiday.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com