U.S. Stocks Sink On Inflation Survey’s Sobering View: Markets Wrap

(Bloomberg) -- US stocks fell after a report showed US year-ahead inflation expectations rose for the first time in seven months. The dollar gained and Treasuries fell.

The S&P 500 fell to lows of the day, falling more than 2%. The growth-sensitive Nasdaq 100 posted the steepest losses, dropping more than 2.5% as Treasury yields climbed, with the two-year rate rising back to 4.5%. 

Equity markets turned sharply lower after a University of Michigan survey showed year-ahead inflation expectations rose in early October and the long-term outlook also crept up. The uptick is potentially worrisome for the Federal Reserve’s efforts to keep views anchored. It also follows data a day earlier that showed a key measure of consumer prices accelerated in September to a 40-year high. On Thursday, however, stocks roared back from early losses in one of the biggest reversals on record.

“Yesterday you had this amazing, powerful intraday rally that was completely wrong,” said Phil Orlando, chief equity market strategist at Federated Hermes. “Then you look at the Michigan numbers this morning that’s consistent with what we’re seeing in the economy, and the stock market now is down to reflect that number. That’s correct.”

Corporate America offered some bright spots, with big banks including JPMorgan Chase & Co. and Wells Fargo & Co. rising after reporting results, while Morgan Stanley slipped as equity trading revenue disappointed. UnitedHealth Group Inc. shares gained after health-care giant beat profit forecasts in the third quarter and raised its outlook for the year.

Read more: Main Street Beating Wall Street Still Leaves Banks Facing Pain

In the latest Fed comment, officials suggested they’re ready to hike rates higher than previously planned. Kansas City Fed President Esther George said the terminal rate may need to be higher to cool prices. San Francisco Fed’s Mary Daly said she’s “very supportive” raising to restrictive levels and to between 4.5% and 5% “is the most likely outcome.”

Forecasts they released last month showed rates reaching 4.4% by year end and 4.6% next year, from a current target range of 3% to 3.25. Swaps traders have boosted wagers for rate hikes over the past week following strong payrolls and hot inflation readings, with the market leaning toward back-to-back jumbo hikes at the next two meetings and a high above 4.9% next year.

“A lot of investors are looking at inflation to get guidance on what the Fed is going to do, to find the bottom in the market once the Fed pivots,” Jerry Braakman, chief investment officer and president of First American Trust, said in an interview. “But looking at CPI, unemployment, there’s obviously a lot of heat in the economy. Inflation is going to take some time to come down.”

In the UK, markets capped another tumultuous week, with gilts sliding as Prime Minister Liz Truss confirmed she will U-turn on a planned freeze on corporation tax cuts. The Bank of England ended its emergency bond purchases on Friday, buying £1.45 billion of long-dated and inflation-linked gilts. Ten-year yields were up 13 basis points at 4.33% in late London trading, after swinging from a drop of 30 basis points earlier. The pound fell for the first time in three days.

Elsewhere, oil headed for weekly losses as signs of a global economic slowdown and tighter monetary policy threaten to sap energy consumption. The International Energy Agency earlier warned crude production cuts agreed by OPEC+ group risked causing a price spike that tipped the global economy into recession. 

Crypto assets gained, with Bitcoin touching a one-week high, within reach of surpassing the $20,000 level. 

Some of the main moves in markets:

Stocks

• The S&P 500 fell 2.1% as of 2:28 p.m. New York time
• The Nasdaq 100 fell 2.7%
• The Dow Jones Industrial Average fell 1.3%
• The MSCI World index fell 1.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.7%
• The euro fell 0.5% to $0.9724
• The British pound fell 1.4% to $1.1169
• The Japanese yen fell 1.1% to 148.77 per dollar

Cryptocurrencies

• Bitcoin fell 0.7% to $19,243.3
• Ether rose 0.6% to $1,301.19

Bonds

• The yield on 10-year Treasuries advanced six basis points to 4.01%
• Germany’s 10-year yield advanced six basis points to 2.35%
• Britain’s 10-year yield advanced 14 basis points to 4.34%

Commodities

• West Texas Intermediate crude fell 3.9% to $85.63 a barrel
• Gold futures fell 1.7% to $1,648.40 an ounce

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.