(Bloomberg) — Volatility gripped financial markets, with investors recalibrating their strategies amid growing calls from prominent voices for higher interest rates to fight inflation.
The S&P 500 traded near session lows, while Treasury yields climbed alongside the dollar. Disappointing trading results from JPMorgan Chase & Co. and Citigroup Inc. weighed on banks, though Wells Fargo & Co. climbed on a bullish projection for a key measure of lending.
JPMorgan chief Jamie Dimon said the Federal Reserve could lift rates as many as seven times, warning that tightening won’t necessarily be as “sweet and gentle” as some might expect. He didn’t specify how quickly that might happen. Fed Bank of New York President John Williams noted the central bank will work to bring inflation back down to its 2% target, while his San Francisco counterpart Mary Daly said officials are “going to have to adjust policy.” For Fed Bank of Philadelphia leader Patrick Harker, “three and possibly four increases this year of 25 basis points” are “appropriate.”
“It’s clear the ground is shifting under investors’ feet,” wrote Callie Cox, U.S. investment analyst at eToro. “After all, the Fed’s expectation went from no hikes in 2022 to four in a matter of a few months. This could be a big change in how investors view the risk and reward of different markets. And change can be uncomfortable.”
Read: Inflation Risks Getting Sticky as Big Firms Flex Pricing Power
Equities offer the best opportunity to outperform inflation, Goldman Sachs Asset Management said in an Investment Ideas 2022 report. Cyclical shares — like financials, energy and resources companies — are especially well-suited to benefit from rising prices, it said. These firms typically excel when the economy is doing well, or recovering from a crisis.
The economy will take an early hit this year from the omicron variant of coronavirus — but the damage shouldn’t last beyond the first quarter, according to Bloomberg’s latest monthly survey of forecasters. U.S. consumer sentiment declined in early January by more than forecast, while retail sales sank in December by the most in 10 months. Growth in U.S. factory output unexpectedly fell.
Read: U.S. Home Sales Tumble Most in 18 Months With Listings Scarce
The Biden administration believes Russian actors are preparing potential sabotage operations against their own forces and fabricating provocations in social media to justify an invasion into Ukraine, according to a U.S. official.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.8% as of 12:56 p.m. New York time
- The Nasdaq 100 fell 0.3%
- The Dow Jones Industrial Average fell 1.2%
- The MSCI World index fell 1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.5% to $1.1400
- The British pound fell 0.4% to $1.3654
- The Japanese yen was little changed at 114.12 per dollar
Bonds
- The yield on 10-year Treasuries advanced seven basis points to 1.77%
- Germany’s 10-year yield advanced four basis points to -0.05%
- Britain’s 10-year yield advanced four basis points to 1.15%
Commodities
- West Texas Intermediate crude rose 2.2% to $83.90 a barrel
- Gold futures fell 0.3% to $1,815.90 an ounce
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