US Stocks Decline as Risk-Off Sentiment Prevails: Markets Wrap

Track the global equity, currency & commodity markets here.

Vildana Hajric

17 Dec 2022, 01:32 AM IST

An electronic stock board outside a securities firm in Tokyo, Japan, on Monday, Nov. 21, 2022. The world's central banks must keep raising interest rates to fight soaring and pervasive inflation, even as the global economy sinks into a significant slowdown, the OECD said. Photographer: SeongJoon Cho/Bloomberg

(Bloomberg) -- US stocks declined for a third day, with investors concerned that the Federal Reserve’s resolve to keep raising rates could tip the economy into a recession.

The S&P 500 and the tech-heavy Nasdaq 100 fell more than 1% each. The quarterly triple witching expiration of equity derivatives is also amplifying market moves on Friday.

Short-term Treasuries rallied while long-dated bonds pared losses after Purchasing Managers’ Index indicators showed a contraction in the services and manufacturing sectors. The dollar fluctuated.

Risk assets have taken a hit since the Fed and the European Central Bank reaffirmed rates will go higher for longer until inflation falls back to their targets. This belied market expectations for a lower peak rate and potential rate cuts in 2023 and also clouded the growth outlook. Economists now see a 60% probability of recession in the US and an 80% chance in Europe.

New York Fed President John Williams further bruised sentiment on Friday after he said on Bloomberg Television that a tight labor market was likely to keep inflation high and warrant more rate increases. San Francisco Fed President Mary Daly was also hawkish on Friday when she reiterated the Fed’s stance and said that she doesn’t know why markets are so optimistic on inflation.

Read More: Daly Says Fed Still Has a ‘Long Way’ to Go to Defeat Inflation

Jim Bianco, Bianco Research founder, and Rob Waldner, fixed income strategist at Invesco, talk about the tensions they see between the Federal Reserve and what the markets are looking for. They are on “Bloomberg The Open.”Source: Bloomberg

“This is the central problem for equities in the short run and the reason stocks are selling off: we’re seeing a drop in headline inflation, but services and wage inflation remain sticky and that’s really the Fed’s focus,” said Alec Young, chief investment strategist at MAPsignals.

Markets have been wrong about the Fed several times this year, and have been forced to adjust their expectations accordingly, Jim Bianco, Bianco Research founder said on Bloomberg Television. If that continues, markets are going to have a tough time, he said.

“The divergence between the market and the Fed is one of the largest we’ve ever seen,” Bianco said. “So next year, 2023, is going to be a year where somebody has got to give.”

Some of the main moves in markets:

Stocks

The S&P 500 fell 1.6% as of 2:05 p.m. New York time
The Nasdaq 100 fell 1.3%
The Dow Jones Industrial Average fell 1.4%
The MSCI World index fell 2.4%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro fell 0.1% to $1.0613
The British pound was little changed at $1.2174
The Japanese yen rose 1% to 136.41 per dollar

Cryptocurrencies

Bitcoin fell 3.3% to $16,824.62
Ether fell 5.2% to $1,198.96

Bonds

The yield on 10-year Treasuries advanced two basis points to 3.47%
Germany’s 10-year yield advanced seven basis points to 2.15%
Britain’s 10-year yield advanced nine basis points to 3.33%

Commodities

West Texas Intermediate crude fell 2.2% to $74.42 a barrel
Gold futures rose 0.8% to $1,801.70 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from and .

More stories like this are available on bloomberg.com