(Bloomberg) — Stocks slumped, while bonds rallied with the dollar amid geopolitical concerns and as investors braced for the Federal Reserve to reiterate its hawkish policy tilt this week.
The S&P 500 extended its selloff from a recent record to 10%, while the Cboe Volatility Index, or VIX, headed toward its biggest surge since November. The tech-heavy Nasdaq 100 sank as much as 3%, with giants Apple Inc. and Microsoft Corp. due to report earnings in the next few days. Haven currencies like the Swiss franc and the Japanese yen outperformed on growing concern over potential Russian military action against Ukraine. Bitcoin tumbled to a six-month low.
The Treasury yield curve — which has been flattening amid investor bets that the Fed will act against inflation and speculation that it could dent economic growth too — reached new lows Monday. Swap markets show a quarter-point Fed rate increase is priced in for March and close to a full percentage point is in the market for the whole of 2022.
Morgan Stanley’s Michael Wilson, who has long been a skeptic of the rally that pushed U.S. equities to successive records, said January’s rout “fits nicely” with his so-called fire and ice narrative, according to which markets were set for a drawdown amid tighter policy and decelerating growth. If anything, the retreat has further to go, Wilson and his colleagues wrote in a note, saying that “winter is here” for stocks.
“There’s certainly a lot on the table this week, and I think the market behavior and all of these risks that they’re facing really is testing the mettle of the long-term investor,” JoAnne Feeney, partner at Advisors Capital Management, told Bloomberg Television Monday.
U.S. Secretary of State Antony Blinken joins a meeting of European Union foreign ministers Monday as Russia and Ukraine accuse each other of escalating military activity. The EU warned that “any further military aggression by Russia against Ukraine will have massive consequences and severe costs.” Russian President Vladimir Putin has repeatedly denied he plans to attack Ukraine.
Read: U.S. Orders Diplomat Families Out of Ukraine Citing War Risk
In corporate news, Kohl’s Corp. surged as the department-store retailer lured interest from two suitors at the same time that it’s grappling with multiple activist investors pressuring it to sell. Halliburton Co. more than doubled its dividend on the back of its biggest profit since 2014 and said demand for fracking is so brisk that the company is working at full capacity.
For more market analysis, read our MLIV blog.
What to watch this week:
- IMF launches the World Economic Outlook update Tuesday.
- U.S. U.S. Conf. Board consumer confidence Tuesday.
- Fed monetary policy decision Wednesday.
- EIA crude oil inventory report Wednesday.
- U.S. new home sales, wholesale inventories Wednesday.
- South African Reserve Bank rate decision Thursday.
- U.S. initial jobless claims, durable goods, GDP Thursday.
- Eurozone economic confidence, consumer confidence Friday.
- U.S. consumer income, University of Michigan consumer sentiment Friday.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 2.6% as of 10:15 a.m. New York time
- The Nasdaq 100 fell 2.7%
- The Dow Jones Industrial Average fell 2.1%
- The Stoxx Europe 600 fell 4%
- The MSCI World index fell 2.7%
Currencies
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.4% to $1.1303
- The British pound fell 0.7% to $1.3458
- The Japanese yen fell 0.2% to 113.87 per dollar
Bonds
- The yield on 10-year Treasuries declined five basis points to 1.71%
- Germany’s 10-year yield declined four basis points to -0.11%
- Britain’s 10-year yield declined four basis points to 1.13%
Commodities
- West Texas Intermediate crude fell 2.9% to $82.65 a barrel
- Gold futures were little changed
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