Declines in US stocks resumed in early trading on Thursday, after growing concern that inflation is crimping corporate performance erased $1.5 trillion from the market value of S&P 500 companies the previous session. Treasury bonds extended their gains.
Following the biggest single-day drop since June 2020 on Wednesday, the benchmark equity index extended losses to 1%. The Nasdaq 100, which is heavy on technology, also fell.
Treasury yields fell about nine basis points as investors sought protection from further declines in risk assets, with the Federal Reserve on track to tame inflation with rate hikes and a shrinking balance sheet beginning in June.
Bets that strong earnings will help investors weather this year’s storm were called into question after US consumer titans warned of the growing impact of high inflation on margins and consumer spending. Meanwhile, Fed officials reaffirmed that tighter monetary policy is on the way, and investors were concerned about the risk of stagflation.
The Stoxx Europe 600 fell by more than 2%, with losses in all industry sectors, with personal care and food and beverages leading the way. Retail and consumer-discretionary stocks suffered some of the biggest losses in Asia and Europe after US investors questioned the lofty valuations of companies like Target Corp. in the face of rising interest rates.
“We remain concerned that the inflationary environment will cause consumers to cut back on spending and create additional risks in consumer-exposed sectors that aren’t yet fully priced in,” said James Rutherford, head of European equities at Federated Hermes Ltd. “Inflationary pressure on company margins is also becoming a growing – and underappreciated – risk.” As a result, we continue to prioritize companies with high revenue visibility and strong pricing power.”
On the commodities front, crude oil continued to fall, while industrial metals were mixed as concerns about global growth dampened demand expectations. Copper remained close to a seven-month low.
In other news, the Swiss franc extended its gains against the US dollar after Swiss National Bank President Thomas Jordan stated that policymakers are prepared to act against inflation.
In emerging markets, Sri Lanka defaulted for the first time in its history as the government tries to avert an economic meltdown that has sparked mass protests and a political crisis. An index of developing-country stocks fell more than 2%.
What harm will be done to the US economy and global markets before the Fed reverses course and eases policy once more? The theme of this week’s MLIV Pulse survey is “Fed Put.” To participate anonymously, please click here.
Some of the most significant market movements:
Stocks
- The S&P 500 fell 1% as of 9:48 a.m. New York time
- The Nasdaq 100 fell 0.9%
- The Dow Jones Industrial Average fell 1.4%
- The Stoxx Europe 600 fell 2.1%
- The MSCI World index fell 1.2%
Currencies
- The Bloomberg Dollar Spot Index fell 0.8%
- The euro rose 0.9% to $1.0562
- The British pound rose 1.1% to $1.2472
- The Japanese yen rose 0.8% to 127.24 per dollar
Bonds
- The yield on 10-year Treasuries declined nine basis points to 2.79%
- Germany’s 10-year yield declined 10 basis points to 0.93%
- Britain’s 10-year yield declined five basis points to 1.81%
Commodities
- West Texas Intermediate crude fell 0.9% to $108.59 a barrel
- Gold futures rose 0.9% to $1,838.20 an ounce
