(Bloomberg) — Stocks fell as traders watched Federal Reserve Chair Jerome Powell’s Senate Banking Committee hearing, with the central bank set for its sharpest turn toward monetary policy tightening in decades.
The S&P 500 dropped for a sixth straight day — its longest losing streak since February 2020. Treasury 10-year bonds hovered near 1.8%, while the dollar was little changed. Powell said Tuesday that “if we have to raise interest rates more over time, we will,” adding that he sees the balance-sheet runoff likely later in 2022. He also predicted a “long road to normal” in monetary policy, while noting that high inflation is a severe threat to progress in the job market.
The drumbeat for the Fed to implement four quarter-point hikes this year is growing — and with the speed that markets have been moving, there’s a possibility that traders may soon look to protect themselves against the risk of even faster tightening. Cleveland Fed President Loretta Mester and her Atlanta counterpart Raphael Bostic backed raising rates as soon as March, while Kansas City Fed chief Esther George said she favors reducing the Fed’s balance sheet early on during the process of normalizing policy.
“Volatility is likely to return to Wall Street in 2022,” said Paul Nolte, portfolio manager at Kingsview Investment Management. “Interest rates will likely be the deciding factor as all eyes will be on the Fed. How many interest rate increases and when will the Fed decide enough is enough will be investor’s focus in the coming weeks.”
In corporate news, CVS Health Corp. said its full-year adjusted earnings for 2021 would be in a higher range than currently expected by analysts. American Airlines Group Inc. will report higher revenue in the fourth quarter than analysts expected as the carrier’s main operations escaped the worst of winter holiday cancellations. International Business Machines Corp. was downgraded to sell at UBS.
Unfazed by the stock market’s bumpy start to the year, strategists from Goldman Sachs Group Inc. to UBS Global Wealth Management reiterated their bullish calls on bets that equities can weather higher rates and rising bond yields.
“The selloff in some long-duration, high-quality names might be overdone soon,” wrote Goldman strategists led by Cecilia Mariotti. With real yields not expected to move much higher, “valuations are unlikely to become a binding constraint for equities.”
Meantime, Goldman cut its forecast for China’s economic growth this year to 4.3% due to the increased difficulty of containing the more-contagious omicron coronavirus variant. The virus strain represents a “west-to-east tidal wave” that may infect more than half of Europe’s population within the next six to eight weeks, according to the World Health Organization.
Here are some key events this week:
- EIA crude oil inventory report on Wednesday.
- China PPI, CPI on Wednesday.
- U.S. CPI, Fed Beige Book on Wednesday.
- U.S. initial jobless claims, PPI on Thursday.
- U.S. Senate Banking Committee hearing for Lael Brainard, nominated as Fed vice-chair on Thursday.
- Richmond Fed President Thomas Barkin, Philadelphia Fed President Patrick Harker,
- Chicago Fed President Charles Evans speak on Thursday.
- 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 0.4% as of 11 a.m. New York time
- The Nasdaq 100 fell 0.2%
- The Dow Jones Industrial Average fell 0.5%
- The Stoxx Europe 600 rose 0.7%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.1341
- The British pound rose 0.2% to $1.3605
- The Japanese yen fell 0.2% to 115.46 per dollar
Bonds
- The yield on 10-year Treasuries advanced one basis point to 1.77%
- Germany’s 10-year yield was little changed at -0.03%
- Britain’s 10-year yield declined two basis points to 1.17%
Commodities
- West Texas Intermediate crude rose 2.1% to $79.84 a barrel
- Gold futures rose 0.7% to $1,811.90 an ounce
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