US tech stocks fell to session lows as falling buying in the struggling sector halted, slowing the best four-day rally in stocks since 2020.
The tech-heavy Nasdaq 100 was little changed while the S&P 500 held on to a lead after Alphabet Inc. and Advanced Micro Devices Inc. pared earlier gains on strong results. Brent crude fell from its highest level in seven years after OPEC+ agreed to another production hike. Treasury yields fell and the dollar weakened.
The start of the year has been volatile, with investors oscillating between concerns about Federal Reserve tightening and confidence in the economic recovery. A strong earnings outlook is helping to ease uncertainty, at least for now. However, many dangers, including stubborn inflation, geopolitical risks and pandemic flare-ups, are still in the background.
“We are seeing a market tussle between the reality of a changing monetary backdrop and what that means for multiples – and possibly economic growth – and what remains good earnings growth, even if profit margins are shrinking. moderating compared to last year,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
The Fed’s latest comment hinted at a calibrated approach to raising interest rates to combat high inflation, allaying some concerns that the economy could be hurt by tighter monetary policy. None of the six Fed officials who have spoken so far this week has supported the idea of a half-point rate hike in March, and the most aggressive, James Bullard, chairman of the St. Louis Fed declared five hikes – one more than every quarter. — is “not too bad a bet”.
“Fed officials are walking away from a 50 basis point hike because it suggests the Fed will not aggressively offset a short-term economic rebound,” wrote Dennis DeBusschere, founder of 22V Research. “If true, this would support a significant reversal in cyclicals, higher real yields and the reopening of equity performance.”
ADP data ahead of Friday’s jobs report showed U.S. corporate employment contracted the most in January since the early days of the pandemic with the spike in omicron cases. Weak jobs numbers could prompt the Fed to reconsider aggressive rate hikes. However, a decline in employment is not unexpected, with government officials warning of the possibility in recent days.
“It was a weak number compared to surveys, but not a cause for concern for the Fed in its hike plans,” said Adam Shakoor, portfolio manager at Columbia Threadneedle Investments. “The Fed has already telegraphed the labor market as tight and near peak employment at the end of 2021, so we should expect to see some deceleration in those numbers in 2022.”
What to watch this week:
- Earnings are owed by Amazon, Ford Motor, Meta Platforms, Qualcomm, Spotify
- OPEC+ meeting on production, Wednesday
- Eurozone CPI, Wednesday
- Bank of England, European Central Bank Rate Decisions, Thursday
- Fed Board of Governors Confirmation Hearing Thursday
- U.S. factory orders, initial jobless claims, durable goods, Thursday
- U.S. payrolls report for January, Friday
- Kicking off the Winter Olympics in China, Russian President Vladimir Putin is due to attend the opening ceremony on Friday
Some of the major movements in the markets:
- The S&P 500 rose 0.2% from 11:23 a.m. PT
- The Nasdaq 100 has changed little
- The Dow Jones Industrial Average is little changed
- The Stoxx Europe 600 rose 0.5%
- The MSCI World index rose 0.3%
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.2% to reach US$1.1294
- The British pound rose 0.3% to reach US$1.3559
- The Japanese yen rose 0.3% to 114.37 per dollar
- The yield on 10-year Treasury bills fell three basis points to 1.76%
- Germany’s 10-year yield was little changed at 0.04%
- The UK 10-year yield fell five basis points to 1.25%
- West Texas Intermediate crude fell 0.7% to US$87.57 a barrel
- Gold futures rose 0.4% to US$1,809.40 an ounce