(Bloomberg) — Technology companies dragged down stocks amid widespread calls from Federal Reserve officials to raise rates to prevent inflation from taking root in the U.S. economy.
The Nasdaq 100 underperformed major benchmarks, with megacaps Tesla Inc. and Microsoft Corp. slumping at least 3.1%. Chipmakers erased gains that were earlier driven by Taiwan Semiconductor Manufacturing Co.’s growth projections. Boeing Co. rallied as Bloomberg News reported the 737 Max is set to resume commercial flights in China as soon as this month.
Federal Reserve Governor Lael Brainard said Thursday the central bank could raise rates as early as March to ensure that generation-high price pressures are brought under control. Chicago Fed President Charles Evans said policy is “not well positioned” for inflation. Officials including Fed Bank of Philadelphia President Patrick Harker, St. Louis Fed chief James Bullard and San Francisco Fed leader Mary Daly are urging a near-term hike following the tapering of asset purchases, which is scheduled to end in March.
“We are in a position where much that has been positive for equities is maybe moving to neutral or negative, and while there are still a few alternatives, it makes the equity market ripe for more fluctuations over the next few months as we see how the data shake out and how the Fed reacts,” said Sarah Hunt, portfolio manager at Alpine Woods Capital Investors.
Read: Kaufman, 1970s Wall Street Dr. Doom, Blasts Powell on Inflation
Rising rates — an upshot of strong economic growth — could drive investors toward value stocks, which tend to be more cyclical and offer near-term cash flows. That leaves growth shares wanting for buyers. The long-term earnings potential of the relatively expensive technology companies becomes less appealing amid elevated inflation.
“Tech is the classic example of an area where stocks have really benefited from the decline in rates,” said Kara Murphy, chief investment officer of Kestra Investment Management. “As expectations rise for rates going forward, then it makes sense that would be the area that would get hurt more.”
Prices paid to U.S. producers decelerated in December as two key drivers of inflation in 2021 — food and energy — declined from a month earlier, representing a respite in the recent trend of sizable increases. At the same time, producers continue to face a variety of materials shortages, limited labor supply and transportation bottlenecks that sent prices soaring last year.
Read: U.S. Initial Jobless Claims Rose to Highest Since Mid-November
Morgan Stanley clients expect financial stocks to outperform this year, according to a survey at its annual conference this week. The poll shows that 45% of respondents bet the industry will be the best performer in 2022. That’s the highest share of the votes for the sector since 2015, the firm said in a note Thursday.
Mortgage rates in the U.S. rose for a third straight week, reaching the highest point in almost two years. The average for a 30-year loan was 3.45%, up from 3.22% last week and the highest since March 2020, Freddie Mac said in a statement Thursday.
Here are some key events this week:
- Bank of Korea policy decision and briefing on Friday.
- Wells Fargo, Citigroup, JPMorgan due to report earnings on Friday.
- U.S. business inventories, industrial production, University of Michigan consumer sentiment, retail sales on Friday.
- New York Fed President John Williams speaks Friday.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.9% as of 2:41 p.m. New York time
- The Nasdaq 100 fell 1.8%
- The Dow Jones Industrial Average was little changed
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.2% to $1.1462
- The British pound rose 0.1% to $1.3718
- The Japanese yen rose 0.5% to 114.11 per dollar
Bonds
- The yield on 10-year Treasuries declined three basis points to 1.71%
- Germany’s 10-year yield declined three basis points to -0.09%
- Britain’s 10-year yield declined three basis points to 1.11%
Commodities
- West Texas Intermediate crude fell 1% to $81.83 a barrel
- Gold futures fell 0.4% to $1,820.90 an ounce
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