For the second time this week, the Dow plunged more than 1,000 points.
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Wall Street has been expecting three rate hikes at most. The S&P 500 slumped 3.8 percent on Thursday, while the Dow dropped 4.2 percent as losses accelerated late in the trading day.
“I don’t think this is a “one-day” that finishes today”, he added.
In the foreign exchange market, the dollar was flat after earlier hitting two-week highs against a basket of major currencies as investors reduced bearish bets on the greenback.
Although the bond market quickly recovered back then, what’s different now is that the inflation data is starting to look stronger and central banks globally are sounding less dovish, meaning there’s very little to keep yields from continuing to rise. In China, markets were overheated after a steep rise since the start of this year, said David Cui, China equity strategist at Bank of America Merrill Lynch.
Concerns about higher bond yields and interest rates spurred recent selling of equities, though the retreat in the market had been long awaited by investors after months of advances.
He said that seeing the pace at which the economy is growing, there may be as many as 3 interest rate hikes this year to cool the rapid advances being made. This in turn would impact the equities markets and could lead to a major correction. Asian stocks closed mixed overnight, while European indexes are mostly higher.
Euro zone yields were also higher on the day while a hawkish message from the Bank of England on interest rates, pushed United Kingdom stocks down around 1 per cent and lifted yields on United Kingdom government bonds to the highest since 2015.
Alexandra Coupe, associate director investment manager PAAMCO, said rising inflation made stocks less attractive.
The volatility in the stock market over recent days did not change the outlook for the USA economy or central bank policy, two senior Federal Reserve officials said on Wednesday.
With the US economy doing well, chances are that the US Fed may go for more rate cuts than the market was anticipating. Why do rising bonds hurt stocks? There are risks from moving wholesale from stocks to bonds.
“But it doesn’t do much for predicting short-term moves”. There are also inflationary concerns, following the Budget proposal to raise minimum support prices (MSP) on crops. “Be careful what you wish for”.
For now, USA bond markets are setting the tone for euro zone peers, said analysts, with many expecting 10-year Treasury yields to test 3 percent soon. With narrow breadth, no sector leadership and a 10-year Treasury note yield headed well above 3.25 per cent, it is premature to bottom-fish in the United States stock market, though I see value creeping back into my favourite names.
Investors in USA stocks are getting uneasy over the continuous upward push in bond yields.
The recent selloff, sparked by last Friday’s jump in Treasury yields, sent the VIX index, considered Wall Street’s “fear gauge”, spiralling.
In earnings news, Twitter (TWTR.N) rose 12.2 percent after the social media company delivered its first quarterly profit and an unexpected return to revenue growth.
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Analysts say market participants are concerned about rising interest rates, inflation and ballooning government debt. So, what asset classes are worth investing in right now? And the Fed may hesitate to come to the rescue. For now, our core view is it will be an orderly transition, as equity markets remain underpinned by solid global growth and strong corporate earnings. If borrowing costs increase, bond investors will want more return – a higher yield.
