The tech-heavy Nasdaq led losses on Wall Street amid growing concerns that the Federal Reserve will raise interest rates.
Tech companies led stocks lower amid widespread calls from Fed officials to raise interest rates to prevent inflation from taking root in the U.S. economy.
Traders also assessed news that a divided Supreme Court blocked the core of President Joe Biden’s push to get more vaccinated, rejecting a rule requiring 80 million workers to be vaccinated or regularly tested. The Nasdaq 100 fell more than 2.5 percent, led by declines in Microsoft Corp and Tesla Inc. The chipmaker erased earlier gains driven by TSMC’s growth forecast. Boeing shares rose after Bloomberg News reported that the Boeing 737 Max will resume commercial flights in China as early as this month.
Federal Reserve Governor Lael Brainard said officials could raise interest rates as early as March to ensure price pressures from high power generation are contained. Philadelphia Fed President Patrick Harker favors a rate hike in March and three or four more hikes in 2022. His Chicago Fed President Charles Evans, who has seen a similar rate hike this year, said he could not judge the likelihood of a first rate hike in two months’ time in 2022. Richmond Fed President Thomas Barkin said officials would be able to begin normalizing interest rates at their March meeting if conditions support it.
“We’re in a position where what’s good for the stock market may be shifting to neutral or negative, and while there’s still not a lot of options, that makes for more volatility in the stock market over the next few months as we see how the data goes. Alpine Woods Capital Sarah Hunt, portfolio manager at Investors, said.
Rising interest rates — the result of strong economic growth — could push investors toward value stocks, which tend to be more cyclical and provide short-term cash flow. That makes growth stocks in need of buyers. The long-term earnings potential of relatively expensive tech companies may become less attractive amid rising inflation.
“Tech is a prime example of stocks really benefiting from lower interest rates,” said Kara Murphy, chief investment officer at Kestra Investment Management. “As expectations for future interest rates rise, then it makes sense that this will be an area that will be hurt more.”
Prices paid to U.S. producers fell in December as the two main drivers of inflation – food and energy – fell in 2021 from a month ago, representing a respite from a recent sharp upward trend. At the same time, producers continued to face various material shortages, limited labor supply and transportation bottlenecks, causing prices to soar last year.
Morgan Stanley clients expect financial stocks to outperform this year, according to a survey at the annual meeting this week. According to the survey, 45% of respondents believe the industry will be the best performing industry in 2022. It was the highest vote in the industry since 2015, the company said in a report on Thursday.
Here are some of the key events of the week:
- Bank of Korea policy decisions and briefings on Friday.
- Wells Fargo, Citigroup and JPMorgan are due to report on Friday.
- Friday US business inventories, industrial production, University of Michigan consumer confidence, retail sales.
- New York Fed President John Williams speaks on Friday.
For more market analysis, read our MLIV blog.
Some major trends in the market:
- The S&P 500 was down 1.4% as of 4 p.m. in New York
- The Nasdaq 100 fell 2.6%
- The Dow Jones Industrial Average fell 0.5%
- MSCI World Index fell 1%
- Bloomberg Dollar Spot Index is little changed
- The euro was little changed at $1.1452
- GBP/USD was little changed at $1.3705
- Yen up 0.4% against dollar at 114.14
- The 10-year Treasury yield fell 4 basis points to 1.70%
- German 10-year bond yields fell 3 basis points to -0.09%
- UK 10-year bond yields fell 3 basis points to 1.11%
- West Texas Intermediate crude fell 1.4% to $81.46 a barrel
- Gold futures fell 0.3% to $1,821.20 an ounce