Stocks pared losses as comments from Federal Reserve officials brought some relief to investors worried about an even more aggressive pace of interest rate hikes plunging the economy into recession.
The S&P 500 rebounded from session lows after Fed Governor Christopher Waller and St. Louis Fed President James Bullard said they would support a 75 basis point hike in July. Traders reduced move bets by a full point. The tech Nasdaq 100 outperformed. Two-year Treasury yields reversed their advance.
“The Fed continues to tell us they are much more focused on inflation than growth,” wrote Matt Maley, chief market strategist at Miller Tabak. “It will take a lot more than a further slowdown in growth to get the Fed to change policy in a way that will create a good buying opportunity in the still-expensive stock market.”
Traders got another reality check on Thursday, as JPMorgan Chase & Co. temporarily halted buybacks as earnings fell short of estimates and Morgan Stanley reported a sharp drop in investment banking revenue. Still, the bosses of both banks said they were not steering their firms into a safe haven, even as they see a confluence of global events hitting the economy in the coming months.
A key measure of U.S. wholesale and business prices rose more than forecast, although some signs of cooling inflationary pressures began to emerge. Over the past few weeks, measures of food, industrial raw materials and oil have fallen sharply. However, it may take months for inflation to moderate at the household level.
U.S. mortgage rates rose, resuming an upward climb that threatens to further cool the housing market. The average rate for a 30-year loan jumped to 5.51 percent from 5.3 percent last week, Freddie Mac said in a statement Thursday. This is an increase of 3.11% at the end of last year.
Shrinking the Fed’s $8.9 trillion balance sheet would have the effect over time of no more than three quarter-point rate hikes, according to a new study by an Atlanta Fed Bank economist. This suggests that asset reductions will have a relatively modest effect compared to interest rate increases to counter inflation.
“We remain skeptical that the Federal Reserve can simultaneously normalize its balance sheet, control inflation and avoid major market shocks,” said Richard Saperstein, chief investment officer at Treasury Partners. “We are increasingly concerned that investors may be forced to endure more volatility in this difficult environment.”
Elsewhere, cryptocurrency lender Celsius Network Ltd. filed for Chapter 11 bankruptcy, but Bitcoin took the news in stride. The digital token could regain its long-touted appeal as an inflation hedge.
What to watch this week:
- China’s GDP, Friday
- US Business Inventories, Industrial Production, University of Michigan Consumer Sentiment, Empire Manufacturing, Retail Sales, Friday
- G20 finance ministers and central bankers are meeting in Bali from Friday
- Atlanta Federal Reserve President Rafael Bostick speaks Friday
Some of the major moves in the markets:
Stock up
- The S&P 500 was down 0.9% as of 1:50 p.m. New York time
- The Nasdaq 100 fell 0.2 percent
- The Dow Jones Industrial Average fell 1.1 percent
- The MSCI world index fell 1.2 percent
Currencies
- The Bloomberg Dollar Spot index rose 0.7 percent
- The euro fell 0.5 percent to $1.0012
- The British pound fell 0.8 percent to $1.1796
- The Japanese yen fell 1.1 percent to 138.91 per dollar
Bonds
- The yield on the 10-year note rose two basis points to 2.96 percent
- Germany’s 10-year bond yield rose three basis points to 1.18%.
- The yield on Britain’s 10-year bond rose four basis points to 2.10 percent
Goods
- West Texas Intermediate crude fell 1.3% to $95.06 a barrel
- Gold futures fell 1.6% to $1,708 an ounce
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