(Bloomberg) — The historic rebound in American stocks proved short-lived, with major averages slumping again as investors remained on edge over the Federal Reserve’s inflation-fighting stance and Russia’s saber-rattling against Ukraine.
Just a day after an almost incredible recovery for the S&P 500 from a 4% rout, the U.S. equity benchmark resumed its losses. While the gauge traded off its worst point of the day, it still headed toward the lowest level since October. The Nasdaq 100 tumbled about 3%. Amid violent equity swings, the Cboe Volatility Index extended its surge into a sixth consecutive day, and was poised for a one-year high. The dollar and Treasuries rose.
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The risk of a “growth shock” to equities is increasing, according to Goldman Sachs Group Inc. strategists. Ahead of Wednesday’s Fed decision that’s expected to point toward a rate hike in March, they warned that sharp monetary tightening to tame inflation could eventually have knock-on effects on economic activity, hurting stocks. The International Monetary Fund cut its world growth forecast for 2022, citing weaker prospects for the U.S. and China along with persistent inflation.
Comments:
- “Volatility is back. We’re having a sea-change in terms of Fed policy. Equity investors frankly have been behind the curve in anticipating what’s coming, so there’s a lot of catch-up to do,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, told Bloomberg Television
- “The market has no conviction. The market has questions. And when everyone is wondering what the state of the world is, you are exposed to these extreme movements in price action that have no fundamental catalyst. The bad thing is that can take you off in a direction that’s very scary,” said Mike Zigmont, head of trading and research at Harvest Volatility Management.
- “Is it time to dive into the market wholesale? I don’t think quite yet. I’m looking for the Fed to actually begin lift off to sort of usher in an era of perhaps modestly less volatility than we’ve experienced in January,” Kate Moore, BlackRock global allocation team head of thematic strategy, told Bloomberg Television.
Mounting geopolitical concern continued to weigh on trading.
The U.S. and U.K. agree to “encourage Russia to de-escalate tensions and commit to a path of diplomacy,” according to a readout of a call between Secretary of State Antony Blinken and U.K. Foreign Secretary Elizabeth Truss. A Kremlin spokesman warned that a U.S. move to put as many as 8,500 troops on alert “exacerbates tensions,” as a top White House official said the reinforcements for North Atlantic Treaty Organization forces in Eastern Europe are “ready to go at a moment’s notice.”
Corporate highlights:
- International Business Machines Corp. reported revenue that beat estimates, buoyed by strong demand in the software unit.
- General Electric Co. missed sales expectations for the fourth quarter as it grappled with worsening supply-chain pressures.
- American Express Co. raised forecasts for revenue and profit after spending on its cards surged to a record.
- Johnson & Johnson projected 2022 earnings and sales above Wall Street’s average expectations.
- Verizon Communications Inc. exceeded estimates for subscriber growth and gave a full-year earnings forecast that topped expectations.
- Nvidia Corp. is quietly preparing to abandon its purchase of Arm Ltd. from SoftBank Group Corp. after making little to no progress in winning approval for the $40 billion chip deal, according to people familiar with the matter.
What to watch this week:
- 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.
- Euro zone economic confidence, consumer confidence Friday.
- U.S. consumer income, University of Michigan consumer sentiment Friday.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.9% as of 12:41 p.m. New York time
- The Nasdaq 100 fell 2.8%
- The Dow Jones Industrial Average fell 1.1%
- The MSCI World index fell 1.4%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.4% to $1.1285
- The British pound was little changed at $1.3494
- The Japanese yen was little changed at 113.85 per dollar
Bonds
- The yield on 10-year Treasuries declined two basis points to 1.75%
- Germany’s 10-year yield advanced three basis points to -0.08%
- Britain’s 10-year yield advanced four basis points to 1.16%
Commodities
- West Texas Intermediate crude rose 2.1% to $85.10 a barrel
- Gold futures rose 0.4% to $1,852.20 an ounce
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