The big tech crash weighed on stocks, with gains tumbling in the broader market as a report showed Americans growing more pessimistic about the outlook for the economy.
Traders had another reality check on Tuesday after a worrying reading on consumer confidence. The expectations gauge – which reflects a six-month forecast – fell to its lowest level in nearly a decade. The figures come at a time when analysts remain bullish on corporate earnings, with net profit margin estimates for Standard & Poor’s 500 companies at an all-time high.
The grim economic situation pushed the US stock index lower, after gains of more than 1% earlier in the day. Quarterly portfolio rebalancing also increased volatility. The tech-heavy Nasdaq 100 fell nearly 3%, led by giants like Amazon.com Inc. and Tesla Inc. The dollar rose, while 10-year Treasury yields fluctuated.
For strategists at Goldman Sachs Group Inc., however, margin forecasts are too optimistic, exposing stocks to further losses when Wall Street analysts cut their estimates. Meanwhile, HSBC Plc’s Max Kettner said stocks still did not reflect the impact of a potential recession, with earnings expectations likely to be revised lower.
“The only thing we can say with conviction is that elevated market volatility is likely to continue until there is clear evidence that inflation is falling and the Fed is moving towards a stance. less hawkish, moving away from the destination of a recession,” he said. . Jason Draho, Head of Asset Allocation Americas at UBS Global Wealth Management.
Federal Reserve officials have played down the risks of the US economy sliding into recession, even as it raises interest rates with another 75 basis point hike on the table next month. New York Fed President John Williams and San Francisco’s Mary Daly both acknowledged they should rein in inflation but insisted a soft landing was still possible.
A key set of rates the Fed is focusing on to help judge that financial conditions are still far from levels that would prompt officials to end their tightening plans. US inflation-adjusted rates at the shorter end of the curve remain mired below zero, even as real rates on longer-duration securities jumped this month to levels not seen since 2019 .
Meanwhile, Cathy Wood said she was wrong to predict inflation would crash as prices for goods and services in the United States hit 40-year highs.
“We got one thing wrong, and that was inflation that was continuing,” Wood, CEO of Ark Investment Management, told CNBC. “Supply chain – I can’t believe it took more than two years, the Russian invasion of Ukraine, of course we couldn’t see that. Inflation was therefore a bigger problem. But I think that put us in front of deflation. »
Elsewhere, oil rose for a third day as global production threats exacerbated already hot markets for physical supplies, while Group of Seven countries agreed to consider capping Russian crude prices.
What you’ll be watching this week:
- US GDP, Wednesday
- European Central Bank President Christine Lagarde, Federal Reserve Chairman Jerome Powell, Bank of England Governor Andrew Bailey and Cleveland Fed Chair Loretta Meester are due to speak at the event. European Central Bank, Wednesday.
- Louis Fed Chairman James Bullard will speak on Wednesday
- Chinese PMI, Thursday
- US personal income, personal consumption expenditure deflator, initial jobless claims, Thursday
- Eurozone CPI, Friday
- Construction spending in the United States, ISM manufacturing, Friday
Some of the major movements in the markets:
- The S&P 500 was down 1.9% at 3:11 p.m. New York time.
- The Nasdaq 100 index fell 2.9%
- The Dow Jones Industrial Average fell 1.5%
- The MSCI World index fell 1.2%
- The Bloomberg Cash Dollar Index rose 0.5%
- The euro fell 0.6% to $1.0521
- The British pound fell 0.7% to $1.2181
- The Japanese yen fell 0.6% to 136.26 per dollar
- The 10-year Treasury yield was little changed at 3.20%
- The yield on German 10-year bonds rose eight basis points to 1.63%
- The UK 10-year bond yield rose seven basis points to 2.46%
- West Texas Intermediate crude rose 2.1% to $111.84 a barrel
- Gold futures fell 0.2% to $1,821.50 an ounce