Tech Extends Slide, Bonds Fall After Fed Minutes: Markets Wrap

(Bloomberg) — U.S. equities deepened losses after minutes from the Federal Reserve flagged the chance of earlier and faster interest rate hikes.

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The S&P 500 fell 1.5%, led by real estate stocks, while the tech-heavy Nasdaq 100 slid 2.7%.

The yield on the U.S. 10-year note added to its climb, reaching 1.70% as traders increased their conviction the U.S. central bank will increase rates at least three times this year.

“Powell was as explicit as a Fed chair can be at the conclusion of the last meeting,” John Lynch, chief investment officer for Comerica Wealth Management, said. “Statement and presser were a big shift with an accelerated taper and plans for three hikes in 2022.”

Technology stocks plunged for a second day as rising Treasury yields added to concerns over growth and profitability. Earlier in the session, the rout had spread to Asia, with a gauge of Chinese names listed in Hong Kong at a six-year low. However, Europe was mostly spared, with the Stoxx Europe 600 drifting to a record.

“At first blush the December FOMC minutes read hawkish, and the market reaction supports this,” said Cliff Hodge, chief investment officer for Cornerstone Wealth. “The fact that FOMC participants are discussing faster and more aggressive rate hikes, alongside a faster pace of balance sheet normalization than the last hiking, indicate that the Fed put for the stock market has been repriced lower.”

Markets have largely turned their attention to tightening monetary policy, however, concerns also persist about the omicron variant’s threat to global growth. Hong Kong reimposed social curbs and halted flights from eight countries. Meanwhile, U.S. school closings are accelerating as case counts soar.

Still, data suggest the U.S. economy is maintaining its resiliency. Ahead of Friday’s U.S. payrolls, a private jobs report Wednesday showed U.S. companies in December added the most jobs in seven months, suggesting employers were able to fill a near-record number of open positions.

“We do expect more waves in 2022, probably more economic halts and probably more shock to the market,” said Anderson Lafontant, senior advisor of advanced planning at Miracle Mile Advisors. “But in general, we think that it should be a positive year — and not as positive as 2021, so a little more muted.”

The dollar was little changed, gold was flat and oil in New York climbed. Bitcoin also tumbled more than 3% to $44,000, the lowest since its early-December weekend flash crash. Other cryptocurrencies also declined.

What to watch this week:

  • FOMC meeting minutes scheduled for release Wednesday

  • Fed’s Bullard discusses the U.S. economy and monetary policy in an event on Thursday

  • Fed’s Daly discusses monetary policy on a panel Friday

  • ECB’s Schnabel speaks on a panel Saturday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 1.5% as of 3:07 p.m. New York time

  • The Nasdaq 100 fell 2.6%

  • The Dow Jones Industrial Average fell 0.7%

  • The MSCI World index fell 1.2%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro rose 0.2% to $1.1308

  • The British pound rose 0.2% to $1.3556

  • The Japanese yen was little changed at 116.13 per dollar

Bonds

  • The yield on 10-year Treasuries advanced five basis points to 1.70%

  • Germany’s 10-year yield advanced four basis points to -0.08%

  • Britain’s 10-year yield was little changed at 1.09%

Commodities

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