Stocks open lower, signaling greater market volatility
US stocks, oil and cryptocurrencies tumbled, signaling the market’s bruising start to the year is set to continue, as investors braced for a Federal Reserve meeting and watched tensions between the West and Russia about the military reinforcement on the border with Ukraine.
The S&P 500 fell 1.6% on Monday, after the benchmark suffered its third consecutive weekly decline and the largest since March 2020. The technology-focused Nasdaq Composite lost 2.1% and the Dow Jones Industrial Average fell 1.3%, or 450 points.
In individual stocks, Tesla, due to the earnings file on Wednesday, was down 4.3%. Moderna shares fell 4.8% and fellow vaccine maker Pfizer lost 2.4%. Chip company Nvidia fell 3.7%. Kohl’s jumped 32% after a group backed by activist hedge fund Starboard Value offered about $9 billion to buy the department store chain.
In the bond market, the yield on 10-year Treasury bills slipped, falling to 1.717% of 1.747% on Friday. Yields have risen this year as bond prices tumbled, a selloff that rippled through financial markets by punishing speculative bets on stocks and cryptocurrencies that took off as the Fed rushed to stimulate the economy at the start of the pandemic.
The losses continued early Monday. Bitcoin was trading at around $33,408, down 8.9% from its level at 5 p.m. ET on Friday. Cathie Wood’s Ark Innovation ETF, a big winner in 2020, fell 4.1% in premarket trading.
The biggest factor pushing yields higher and stock prices lower is the expectation that the Fed will raise interest rates several times in 2022 to contain inflation, which is at its fastest pace in 40 years. The central bank is due to meet on Tuesday for a two-day meeting. In his wrap-up on Wednesday, Chairman Jerome Powell is expected to signal that rates will likely rise as early as March.
The central bank is concerned that the rapid rise in consumer prices could feed itself by fueling expectations of higher inflation, said Lyn Graham-Taylor, senior rates strategist at Rabobank. “It’s about tightening up aggressively to overcome that.”
Mr Graham-Taylor said he thinks inflation will come down this year and the Fed won’t raise rates as many times as the market expects, pushing government bond yields down to 10 year.
Fears of a possible Russian invasion of Ukraine also weighed on markets earlier this week, analysts said. The State Department on Sunday ordered the families of American diplomats in Ukraine to leave the country, while the White House plans to send several thousand troops to Europe.
Sebastien Galy, senior macro strategist at Nordea Asset Management, said a conflict and its possible consequences, including the closure of the US financial system to Russian banks, would play out in markets in an unpredictable way. “The closer you get to the cliff, the more nervous you are [the market] is,” Galy said. “We do not have the information to exchange.”
The Russian ruble fell 1.8% to trade at around 79 to the dollar on Monday. The cost of insuring against a Russian government default has risen, according to data from IHS Markit.
US earnings season continues, with results expected from Halliburton,
International Business Machines and Steel Dynamics on Monday, followed by General Electric, Microsoft, Apple and Tesla later in the week. About a fifth of S&P 500 companies filed results and 82% beat analysts’ expectations for earnings per share, according to FactSet.
Oil prices, which had defied pressure in broader markets by rising at the start of 2022, have been caught up in the selloff. Brent crude futures, the benchmark in international energy markets, fell 1.1% to $86.91 a barrel.
International stock markets fell, after Wall Street lower. The Stoxx Europe 600 fell 2.7%, led by stocks of travel, leisure and basic resource companies.
however, jumped 7.7% after reports that activist hedge fund Trian Fund Management had taken a stake in the packaged food and consumer goods company following its failed bid for part of GlaxoSmithKline.
Vodafone Group rose 5.9% after Reuters reported the telecoms were in talks with Iliad to combine their units in Italy.
Asian markets were mixed as the prospect of higher US interest rates caused investors to reassess valuations of fast-growing technology companies. Hong Kong’s Hang Seng fell 1.2%, the Shanghai Composite was flat and Japan’s Nikkei 225 rose 0.2%.
Chinese internet stocks have been under pressure. Hong Kong-listed shares of Alibaba Group and JD.com fell 6.3% and 5.6%, respectively.
Still, Frank Benzimra, head of Asian equity strategy at Societe Generale, said investors were returning to China’s internet sector, attracted by relatively low valuations and a changing regulatory environment. “There seems to be some stabilization in the regulatory framework. Recent news hasn’t been all bad for China’s internet sector,” he said.
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