What You Need to Know
- Markets are rounding off a week buffeted by interest-rate increases, including the Federal Reserve’s biggest move since 1994.
US stocks rose Friday, led by gains in technology companies, as traders parse comments from Federal Reserve officials reiterating that the central bank needs to do more to curb the hottest inflation in 40 years.
The S&P 500 drifted higher after Thursday’s plunge took US stocks to the lowest since late 2020.
The tech-heavy Nasdaq 100 rose as Microsoft Corp. and Apple Inc. jumped at least 1% each and Seagen Inc. soared after reports that Merck & Co Inc. is eyeing a purchase of the biotechnology firm.
Friday also brings the quarterly event known as triple witching. The $3.5 trillion options expiry has arrived with limited downside volatility so far. Treasury 10-year yields hovered around 3.2%. The dollar snapped two days of losses.
Markets are rounding off a week buffeted by interest-rate increases, including the Federal Reserve’s biggest move since 1994, a shock Swiss National Bank hike and the latest boost in UK borrowing costs.
The rate hikes are draining liquidity, sparking losses in a range of assets. Traders are still assessing the path of rate hikes the Federal Reserve could take and the impact that would have on the economy.
“You’re seeing this compression in the valuation of stocks as investors reassess what the interest rate’s going to be for the near term,” said Tom Hainlin, national investment strategist at US Bank Wealth Management. “And then we haven’t yet really seen any material revision in corporate profits that may result from higher interest rates.”
Federal Reserve Chair Jerome Powell said, on Friday, that the central bank is “acutely focused” on returning inflation to 2% and that another 75 basis-point hike or 50 basis-point move was likely at the July meeting.
Federal Reserve Bank of Kansas City President Esther George said she opposed the Fed’s Wednesday decision because the move, combined with the shrinking of the central bank’s balance sheet, creates uncertainty about the outlook.
“I think that we need to work on the basis that the macroeconomic and investment environment will remain potentially very fragile,” said Christian Nolting, Deutsche Bank’s private bank global chief investment officer. “Recovery will not be simple and, even on the most optimistic assumptions — for example, on Chinese economic reopening — issues such as supply-chain disruption will take time to fix.”
US factory production data for May pointed at cooler demand as output unexpectedly declined. Meanwhile, industrial production for May rose, but below the estimate.
Global stocks are facing one of their worst weeks since pandemic-induced turmoil of 2020 and some investors aren’t sure that assets have sunk far enough to price in the tightening cycle.
“Near-term recession has become a foregone conclusion for many investors; the only questions now are its duration and the severity of its impact on earnings,” Wells Fargo’s Chris Harvey wrote in a note.
Compared with the last two bear markets that were also associated with runaway inflation, the current one, at six months, has a long way to go, Harvey said. The 1980-1982 downturn lasted just over 20 months, as did the one between 1973 and 1974.
Bitcoin fell back below $21,000, after snapping its longest streak of losses in Bloomberg data going back to 2010 earlier on Friday.