Stocks and bonds sold off after Federal Reserve Chairman Jerome Powell underwhelmed markets by refraining from pushing back more forcefully against the recent spike in Treasury yields.
The S&P 500 pared losses after briefly erasing its advance for 2021, but the gauge still headed toward its lowest close in about five weeks. Benchmark 10-year bond rates topped 1.5% as the dollar climbed. The tech-heavy Nasdaq 100 extended its decline from a February peak to almost 10%, and the Russell 2000 of small caps slid nearly 2.5%. Oil remained higher.
In an online event Thursday, Powell said he’d be “concerned” by disorderly markets, but stopped short of offering steps to curb volatility. The surge in Treasury yields has triggered fears about elevated stock valuations after a torrid rally from the depths of the pandemic. While bulls have decided to view the jump in rates as a sign of economic strength that could lift corporate profits, there’s been mounting concern over a potential pickup in consumer prices. For Bleakley Advisory Group’s Peter Boockvar, the Fed has put itself in a “tough situation,” and the only way out is if inflation doesn’t rise any further and stays below the 2% target.
“We are again seeing a market that is taking control of monetary policy from the Fed,” said Boockvar, the firm’s chief investment officer. “Long rates are rising right now because Powell is again very dovish. The more dovish they get in the face of market expectations of higher inflation, the more financial tightening we’ll see.”
Despite the lingering uncertainties about the impacts of rising bond yields, such fears are “misplaced,” according to Candice Bangsund, portfolio manager of global asset allocation at Fiera Capital.
“As long as the back-up in bond yields reflects stronger growth expectations (versus tighter monetary policy), then the long-term bull market will not be at risk,” she said. “The latest normalization in bond yields should be viewed as an encouraging sign that growth is healing, while the prospect for a hawkish turn from the Federal Reserve is clearly not in the cards today.”
Some key events to watch this week:
- The February U.S. employment report on Friday will provide an update on the speed and direction of the nation’s labor market recovery.
These are some of the mains moves in markets:
Stocks
- The S&P 500 fell 1.3% as of 3:06 p.m. New York time.
- The Stoxx Europe 600 Index fell 0.4%.
- The MSCI Asia Pacific Index dipped 2.4%.
- The MSCI Emerging Market Index declined 2.6%.
Currencies
- The Bloomberg Dollar Spot Index rose 0.6%.
- The euro decreased 0.7% to $1.1974.
- The Japanese yen depreciated 0.8% to 107.86 per dollar.
Bonds
- The yield on 10-year Treasuries rose six basis points to 1.54%.
- Germany’s 10-year yield fell two basis points to -0.31%.
- Britain’s 10-year yield decreased five basis points to 0.731%.
Commodities
- West Texas Intermediate crude gained 3.9% to $63.65 a barrel.
- Gold slid 0.9% to $1,696.54 an ounce.
