U.S. Federal Reserve Chairman Jerome Powell said on Thursday he would be “ concerned ” about the mess in the markets, but stopped short of offering measures to reduce increased volatility.
Stocks and bonds sold off after Federal Reserve Chairman Jerome Powell disappointed markets by refraining from pushing back more vigorously the recent surge in Treasury yields.
The S&P 500 briefly erased its 2021 gains, marking its lowest close in about five weeks. The benchmark 10-year bond yields topped 1.5% and the dollar rose. The Nasdaq 100 extended losses from a February high to nearly 10%, and the Russell 2000 small-cap slid 2.8%. Reddit users seemed to be rushing to GameStop Corp., with the video game retailer booming.
Powell said in an online event Thursday that he would be “concerned” about the mess in the markets, but stopped before offering measures to reduce the increased volatility. The surge in Treasury yields has sparked fears about the valuation of stocks after a torrid rally in stocks deep in the pandemic.
As the bulls have decided to view the rate hike as a sign of economic strength that could push up corporate profits, there are growing concerns that inflation may pick up. For Peter Boockvar of the Bleakley Advisory Group, the Fed has put itself in a “difficult situation”.
“We are once again seeing a market taking control of monetary policy from the Fed,” said Boockvar, the company’s chief investment officer. “Long rates are going up right now because Powell is very accommodating again. The more accommodating they are to market expectations of higher inflation, the more we will see financial tightening. “
Despite lingering uncertainties about the effects of rising bond yields, those fears are “misplaced,” according to Candice Bangsund, portfolio manager of global asset allocation at Fiera Capital.
“As long as the rebound in bond yields reflects higher growth expectations (versus tighter monetary policy), then the long-term bull market will not be threatened,” she said. “The latest normalization of bond yields should be seen as an encouraging sign of recovery in growth, while the prospect of a hawkish turn by the Federal Reserve is clearly not on the cards today.”
The US Senate voted in favor of a $ 1.9 trillion relief bill backed by President Joe Biden, sparking a debate that is expected to end this weekend with the approval of the country’s sixth stimulus since the lockdowns triggered by the pandemic that began a year ago.
Elsewhere, Bitcoin’s appeal as an inflation hedge has been tested, with the largest cryptocurrency joining a fall in other risky assets. Oil surged after the OPEC + alliance surprised traders with its decision to keep production unchanged, signaling a tighter crude market in the coming months.
Some key events to watch this week:
Friday’s February US employment report will provide an update on the speed and direction of the country’s labor market recovery.
Here are some of the main movements in the markets:
- The S&P 500 sank 1.3% at 4 p.m. New York time.
- The Stoxx Europe 600 index fell 0.4%.
- The MSCI Asia Pacific index fell 2.5%.
- The MSCI Emerging Markets Index fell 2.6%.
- The Bloomberg Dollar Spot Index rose 0.7%.
- The euro fell 0.8% to $ 1.1971.
- The Japanese yen depreciated 0.8% to 107.92 per dollar.
- The yield on 10-year Treasuries rose six basis points to 1.54%.
- Germany’s 10-year yield fell two basis points to -0.31%.
- Britain’s 10-year yield fell five basis points to 0.731%.
- West Texas Intermediate crude jumped 4.8% to $ 64.24 a barrel.
- Gold fell 0.8% to $ 1,698.21 an ounce.