The tech-heavy Nasdaq has suffered losses on Wall Street amid growing fears that the US Federal Reserve will raise interest rates.
Technology companies have suffered inventory losses amid widespread calls from Federal Reserve officials to raise rates to prevent inflation in the U.S. economy from taking root.
Traders also judged the news that a divided Supreme Court was at the center of President Joe Biden’s effort to get more people vaccinated, rejecting a rule that would have required 80 million workers to get shots or periodic tests. The Nasdaq 100 fell more than 2.5%, led by losses in Microsoft Corp. and Tesla Inc. Chipmakers wiped out profits previously driven by Taiwan Semiconductor Manufacturing Co. growth projections. Boeing Co. came together when Bloomberg News reported the 737 Max is going to resume commercial flights in China as soon as this month.
Fed Governor Lael Brainard said officials could raise rates as early as March to ensure generationally high price pressures are brought under control. Patrick Harker, president of the Fed Bank of Philadelphia, is in favor of a March lifting and three or four increases for 2022. His Chicago counterpart Charles Evans – who is seeing a similar number of increases this year – said he did not probability of the first increase can judge in two months time. Thomas Barkin, president of Richmond Fed, said officials would be in a position to start normalizing rates during their March meeting should circumstances support it.
“We are in a position where many who were positive for equities may be moving to neutral or negative, and although there are still few alternatives, it is making the stock market ripe for more fluctuations over the next few months as we see the data shake out and how the Fed reacts, ”said Sarah Hunt, portfolio manager at Alpine Woods Capital Investors.
Rising rates – a result of strong economic growth – could drive investors to value stocks, which tend to be more cyclical and offer short-term cash flow. This leaves growth stocks in need of buyers. The long-term earnings potential of the relatively expensive technology companies may become less attractive amid rising inflation.
“Technology is the classic example of an area where equities have really benefited from the fall in rates,” said Kara Murphy, chief investment officer of Kestra Investment Management. “As expectations for rates rise in the future, it makes sense that this will be the area that will be more hurt.”
Prices paid to U.S. producers slowed in December as two key drivers of inflation in 2021 – food and energy – fell from a month earlier, representing a breather in the recent trend of significant rises. At the same time, producers continued with a variety of material shortages, limited labor supply and transportation bottlenecks that caused prices to rise last year.
Morgan Stanley customers expect financial stocks to outperform this year, according to a survey at its annual conference this week. The poll shows that 45% of respondents bet that the industry will be the best performer in 2022. This is the highest share of votes for the sector since 2015, the firm said in a note on Thursday.
Here are some key events this week:
- Bank of Korea’s policy decision and briefing on Friday.
- Wells Fargo, Citigroup, JPMorgan should report earnings on Friday.
- U.S. business inventory, industrial production, University of Michigan consumer sentiment, retail sales on Friday.
- New York Fed President John Williams speaks Friday.
For more market analysis, read our MLIV blog.
Some of the key movements in markets:
- The S&P 500 dropped 1.4% by 4pm New York time
- The Nasdaq 100 fell 2.6%
- The Dow Jones Industrial Average fell 0.5%
- The MSCI World Index fell 1%
- The Bloomberg Dollar Spot Index has changed little
- The euro changed little at $ 1,1452
- The British pound changed little at $ 1.3705
- The Japanese yen rose 0.4% to 114.14 per dollar
- Yields on 10-year treasuries dropped four basis points to 1.70%
- Germany’s 10-year yield fell three basis points to -0.09%
- Britain’s 10-year yield fell three basis points to 1.11%
- West Texas Intermediate Crude Oil fell 1.4% to $ 81.46 a barrel
- Gold futures fell 0.3% to $ 1,821.20 per ounce