Stocks Hit by Fed-Hike Jitters as US Yields Surge: Markets Wrap
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(Bloomberg) -- Stocks kicked off the week with losses and bond yields climbed as a US services gauge unexpectedly rose, fueling speculation the Federal Reserve will keep its policy tight to tame stubborn inflation.
The selloff spread throughout all major S&P 500 sectors, with about 95% of the gauge’s companies in the red. Tesla Inc. tumbled almost 6.5% as Bloomberg News reported the electric-vehicle giant plans to lower production at its Shanghai factory. A slide in the Russell 2000 of small caps approached 3%.
Treasuries slumped across the curve, driving 10-year yields to 3.6%. Swaps showed higher expectations on where the Fed terminal rate will be, with the market indicating a peak above 5% in the middle of 2023. The current benchmark sits in a range between 3.75% and 4%. The dollar halted a four-day rout.
“Good economic news is bad news for stocks as it will keep the risk elevated that rates might have to end up higher later next year,” said Ed Moya, senior market analyst at Oanda.
Equities also came under pressure on the view that a rally that drove the S&P 500 above a key technical indicator last week would be overdone given the current set of economic risks.
Morgan Stanley’s Michael Wilson, one of the US stock market’s most-vocal skeptics, says investors are better off booking profits. “We are now sellers again,” the strategist and his colleagues wrote.
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Traders are also anxiously awaiting Friday’s report US producer prices -- one of the final pieces of data Fed officials will see before their Dec. 13-14 policy meeting. Inflation numbers over the past month have indicated pressures are slowly cooling, but remain very elevated.
An analysis of every S&P 500 bear market since 1960 suggests it could easily take over two years to recoup the index’s prior high, especially if recession plagues the near-term outlook, Bloomberg Intelligence strategists Gina Martin Adams and Michael Casper said.
“Markets are likely to remain volatile, and we do not think the economic conditions for a sustained upturn are yet in place,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “In our view, economic growth is likely to slow further next year as the cumulative impact of Fed rate hikes weighs on activity.”
Meantime, a majority of 291 respondents to the latest MLIV Pulse survey said leveraged loans would be the canary in the coal mine to indicate that corporate credit quality is getting worse.
About 28% of survey respondents expect defaults to jump significantly if US rates peak at or below 5%, which is about where the market bets the Fed will stop hiking. Another 63% see defaults surging if rates peak above 5%.
Elsewhere, oil erased gains as risk-averse investors pared crude positions ahead of the end of the year.
Key events this week:
- US trade, Tuesday
- EIA crude oil inventory report, Wednesday
- Euro zone GDP, Wednesday
- US MBA mortgage applications, Wednesday
- ECB President Christine Lagarde speaks, Thursday
- US initial jobless claims, Thursday
- US PPI, wholesale inventories, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.8% as of 4 p.m. New York time
- The Nasdaq 100 fell 1.7%
- The Dow Jones Industrial Average fell 1.4%
- The MSCI World index fell 1.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.8%
- The euro fell 0.5% to $1.0486
- The British pound fell 0.8% to $1.2180
- The Japanese yen fell 1.9% to 136.80 per dollar
Cryptocurrencies
- Bitcoin fell 1% to $16,938.17
- Ether fell 1.6% to $1,256.18
Bonds
- The yield on 10-year Treasuries advanced 11 basis points to 3.60%
- Germany’s 10-year yield advanced two basis points to 1.88%
- Britain’s 10-year yield declined five basis points to 3.10%
Commodities
- West Texas Intermediate crude fell 3.3% to $77.36 a barrel
- Gold futures fell 1.6% to $1,780.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
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