(Bloomberg) — Volatility gripped financial markets once again, with traders taking a more cautious attitude after the Federal Reserve’s hawkish pivot.
Most major groups in the S&P 500 fell, with the gauge extending its weekly slide. Trading volume was about 45% above the average of the past month, with investors bracing for a quarterly rebalancing of the U.S. benchmark index and the expiration of equity derivatives that could magnify moves. The technology-heavy Nasdaq 100 erased gains amid intense market swings.
Expectations of tapering of pandemic stimulus and interest-rate hikes in the coming years have unsettled investors this month. The MSCI World Growth Index of companies that show stronger earnings expansion is down 1.6% on December, while its value counterpart of cheaper stocks has jumped nearly 4%.
Comments:
- “This week’s stock market volatility is being driven by a perfect storm of factors, including negative omicron headlines, the emergence of a more hawkish Federal Reserve and profit taking in megacap tech stocks. Our advice to investors is to stay invested, but be cautious,” said Robert Schein, chief investment officer, Blanke Schein Wealth Management
- Tech sold off “amid concerns that policy tightening from the Fed will reduce the appeal of lower-yielding growth stocks, especially those with overstretched valuations. Sentiment hasn’t been helped in the sector by insider selling of late,” said Fawad Razaqzada, an analyst at ThinkMarkets.
- “None of us really want to leave the party too soon — we don’t want to miss out — but at the same time, we are realizing that some parts of tech have run very hot,” Anna Han, equity strategist at Wells Fargo Securities, told Bloomberg Television.
The old stock market adage of “buy the first hike, sell the penultimate rate hike” could go wrong this time as inflation is out of control, according to Bank of America Corp.
“Little cracks” were appearing in megacap tech stocks, the epicenter of a 13-year bull market, before tightening even began, Michael Hartnett, BofA’s chief investment strategist wrote in a note. He remains bearish until investor positioning “shows full-blown capitulation” or a credit event on Wall Street causes central banks to announce a reversal of tightening.
Corporate highlights:
- Elon Musk offloaded a second batch of Tesla Inc. shares in a matter of days and is now three-quarters of the way done selling 10% of his stake in the company.
- FedEx Corp. jumped after raising its outlook and posting earnings that handily beat analysts’ estimates, thanks to record profit at its Express package business.
- Rivian Automotive Inc. fell to the lowest level since they started trading last month after the electric-truck maker’s debut earnings report revealed a slower-than-expected increase in production.
- Darden Restaurants Inc., the operator of Olive Garden restaurants, dropped after its forecast fell short of Wall Street’s expectations and the company said its chief executive officer will retire next year.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.6% as of 11:37 a.m. New York time
- The Nasdaq 100 fell 0.1%
- The Dow Jones Industrial Average fell 1.1%
- The Stoxx Europe 600 fell 0.6%
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.5% to $1.1277
- The British pound fell 0.4% to $1.3271
- The Japanese yen rose 0.1% to 113.54 per dollar
Bonds
- The yield on 10-year Treasuries declined two basis points to 1.39%
- Germany’s 10-year yield declined three basis points to -0.38%
- Britain’s 10-year yield advanced one basis point to 0.77%
Commodities
- West Texas Intermediate crude fell 1.9% to $71.03 a barrel
- Gold futures rose 0.4% to $1,805.30 an ounce
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