BOSTON (Reuters) – Treasury yields soared on Tuesday, taking US stocks with them, as investors digested the growing possibility of a rapid interest rate hike after hawkish comments from the US Federal Reserve.
Nasdaq (nineteenth) Led Wall Street’s main indexes higher, up nearly 2%, as investors bought the dip in technology stocks, including Apple Inc. (AAPL.O)Microsoft Corporation (MSFT.O)Amazon.com Inc (AMZN.O)Meta Platforms Inc (FB.O) and Alphabet Inc (GOOGL.O). Read more
Dow Jones Industrial Average (.DJI) The index rose 254.87 points, or 0.74%, to 34807.86 points, and the Standard & Poor’s 500 (.SPX) It rose 50.63 points, or 1.13%, to 4,511.81 points.
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Federal Reserve Chairman Jerome Powell said on Monday the central bank could move “more aggressively” to raise interest rates to fight inflation, possibly raising more than 25 basis points at one or more meetings this year. Read more
The market is placing a 72.2% probability that the Federal Reserve will raise the federal funds rate by 50 basis points when policymakers meet in May, up from a probability of just over 50% on Monday.
At around 2000 GMT, or 4:00 PM ET, the 10-year US Treasury yield was at 2.38%, after hitting its highest level since 2019. Two-year notes were also higher, hitting 2.16% from 2.13%.
“The degree of difficulty for the Federal Reserve Bank of Jerome Powell in sustaining a smooth landing for the economy is roughly the same as that of Captain Sullenberger’s emergency landing on the Hudson River,” said Aaron Clark, portfolio manager at GW&K Investment Management in Boston. 2009 An American Airlines plane lands after its engines fail.
“The market continues to be in a tug of war between a policy error causing recession and a resilient economy with a strong consumer and corporate sector,” Clark wrote in an email.
Stocks in Europe also rose. Stokes 600 (.stoxx) It is up 0.85% after climbing in recent sessions to reach a one-month high. FTSE 100 index in London (.FTSE) Profit of approximately 0.5%. Read more
The MSCI World Stock Index, which tracks stocks in 50 countries, is up nearly 1.1% (.MIWD00000PUS).
The recovery in stocks could be a case for investors buying lower, but growth stocks would suffer if the US 10-year yield approached 2.5%, said Matthias Schipper, global head of multi-asset portfolio management at Allspring Global Investments in London.
“We saw a sharp rise in yields yesterday and we see that continuing today over the longer term, so it will likely put pressure on stocks…it will be difficult for stocks to have a positive performance.”
JPMorgan took a different view and said 80% of its clients plan to increase equity exposure, a record figure.
“With positioning light, sentiment weak, and geopolitical risks likely to subside over time, we believe risks are skewed to the upside,” JPMorgan strategists wrote in a note to clients.
“We believe investors should add risks in areas that have outgrown the downside such as innovation, technology, biotechnology, emerging markets/China and small stocks. These sectors are pricing in a severe global recession, which, in our view, will not materialize.”
The conflict in Ukraine continued to affect sentiment. Russia, the United States and Britain traded accusations at the United Nations on Tuesday over a possible chemical weapons attack in Ukraine, but none provided any evidence to support their concerns. Read more
Oil prices fell less than 1% on Tuesday as the dollar rose and the European Union seemed unlikely to continue imposing a ban on Russian oil, a day after prices jumped 7% and also rose earlier in the session. Read more
The dollar fell on Tuesday as support from Powell’s comments faded, and a rally in stock markets helped boost risk sentiment. Read more
Spot gold fell 0.7% to $1,921.73 an ounce, under pressure from higher interest rates. Read more
Cryptocurrency bitcoin is up around 3.25% at around $42,376, extending gains since its intraday low of $34,324 on February 24, when Russia invaded Ukraine. Read more
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Additional reporting by Lawrence Delevingne in Boston and Elizabeth Hawcroft in London; Editing by Jonathan Otis, Matthew Lewis and Leslie Adler
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