US stocks dropped for a second straight session as investors revisited their wagers on peak rates after economic data highlighted persistent inflationary pressures and Federal Reserve officials continued to sound hawkish.
(Bloomberg) — US stocks dropped for a second straight session as investors revisited their wagers on peak rates after economic data highlighted persistent inflationary pressures and Federal Reserve officials continued to sound hawkish.
The S&P 500 closed the day at its lowest level in nearly six weeks. The Nasdaq 100 dropped to its lowest since January 30. Both indexes had stayed firmly in the red for most of Wednesday’s session after a gauge of manufacturing improved for the first time in six months. Investors balked at a measure of prices paid rising.
Treasury yields remained higher, with the 10-year rate piercing the closely watched 4% level. Fed swaps are now pricing in a peak policy rate of 5.5% in September, with some traders betting that the benchmark interest rate could reach 6%. A dollar index dropped the most since February 1.
Among individual movers, Salesforce Inc. soared in late trading after signaling that it’s making progress in its efforts to boost profitability this year. Lowe’s Cos., after forecasting a decline in sales, fell the most since Sept. 13 during regular trading. Dollar Tree Inc., which also reported earnings, climbed the most in a month. Tesla Inc. dropped 0.7% in late trading as of 4:58 p.m. New York time as it offered updates during its investor day presentation.
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Investors remained cautious on Wednesday after Fed officials restated their hawkish stance. Atlanta Fed’s Raphael Bostic called for continued rate hikes to above 5% to make sure inflation doesn’t pick up again. Minneapolis Fed President Neel Kashkari, meanwhile, said he’s concerned that there isn’t much of an indication that the central bank’s rate hikes are slowing down the services sector.
This year could potentially be challenging, according to George Patterson, chief investment officer at PGIM Quantitative Solutions.
“I see more risk to the downside in the US only because the US is firing on all cylinders, and my belief is they’re going to have to raise rates a bit more than people are expecting,” he said in an interview at Bloomberg’s New York headquarters.
Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, says the VIX, a measure of volatility in stocks, hasn’t been the most reliable indicator of what’s happening in the markets recently.
“To say that the volatility markets have been strange for the last couple of months is maybe the understatement of the millennium here,” he said on Bloomberg Television. “And a lot of reason the truth is so difficult to discern is because of these zero-days-to-expiration options, which really are ruling the moves from moment to moment in the markets.”
He says the macro picture will become clearer in the coming weeks, depending on the incoming economic data.
Meanwhile, bonds in Europe also fell as evidence mounted that further tightening is needed to tamp down on inflation. The latest data showed an unexpected acceleration in German inflation in February, further complicating the European Central Bank’s task after overshoots this week in other parts of the continent. A 4% ECB terminal rate is also now fully priced with rates forecast to rise through February 2024.
Key events this week:
- Eurozone CPI, unemployment, Thursday
- US initial jobless claims, Thursday
- Eurozone S&P Global Eurozone Services PMI, PPI, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.5% as of 4:03 p.m. New York time
- The Nasdaq 100 fell 0.9%
- The Dow Jones Industrial Average was little changed
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.5%
- The euro rose 0.9% to $1.0666
- The British pound was little changed at $1.2019
- The Japanese yen was little changed at 136.20 per dollar
Cryptocurrencies
- Bitcoin rose 1.1% to $23,399.5
- Ether rose 2.1% to $1,640.26
Bonds
- The yield on 10-year Treasuries advanced seven basis points to 3.99%
- Germany’s 10-year yield advanced six basis points to 2.71%
- Britain’s 10-year yield advanced one basis point to 3.84%
Commodities
- West Texas Intermediate crude rose 0.9% to $77.74 a barrel
- Gold futures rose 0.4% to $1,844.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Peyton Forte and Alice Atkins.
More stories like this are available on bloomberg.com
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