European stocks rose on Tuesday, after a frantic run on Wall Street, as the prospect of the U.S. central bank rolling back its pandemic-era monetary stimulus sent swings in global markets.
The Stoxx Europe 600 index gained 1% in early trading, rebounding from a 3.8% decline in the previous session. This followed a day of intense change on Wall Street, where the benchmark S&P 500 index briefly fell into correction territory before reversing losses as traders took advantage of steep declines to buy discounted stocks.
Bargain hunters remained on the sidelines in Asia-Pacific. Hong Kong’s Hang Seng stock index fell 2% as Chinese tech companies declined. Wall Street stock futures implied a resurgence in selling later in the day, with contracts on the high-tech Nasdaq 100 down 1.3% while those on the S&P 500 fell 0.8 %.
The FTSE All World index of developed and emerging market stocks has lost more than 6% this month – leaving it on course to record the worst month since 2020 – as investors grapple with a hawkish tilt of the US Federal Reserve, which is expected to raise interest rates about four times this year to combat soaring inflation.
The shift in stance comes after the world’s most influential central bank kept borrowing costs near zero and bought large amounts of Treasuries and other debt instruments to ease financial conditions during the pandemic. , boosting stock markets and investors’ appetite for speculative assets.
Valuations have fallen on Wall Street, with the S&P 500 forward price-to-earnings ratio falling from 23 in June to around 19 as investors anticipate higher interest rates that reduce the present value of companies’ future cash flows .
Shares of tech groups, which make up a large part of the two major U.S. indices and are often not expected to generate peak earnings for years, have been particularly volatile.
“You naturally see the most significant multiple compression in companies that lack short-term earnings and where those cash flows are long-term,” said Grace Peters, head of investment strategy for Europe at the JPMorgan private bank.
The Nasdaq fell 4.9% on Monday, approaching a bear market defined by a 20% decline from its all-time high, before rebounding later in the session. The Vix, the measure of expected volatility on the S&P 500 that has a long-term average of around 20 points, hit 38.4 on Monday and stayed above 32 on Tuesday.
Some analysts suspect the Fed ended its two-day meeting by allaying fears of rapid rate hikes hurting economic growth.
“The market got a bit ahead of itself,” said Jorge Garayo, global head of inflation strategy at Societe Generale. “This meeting will be about pushing back price hikes even further,”
U.S. Treasury prices fell on Tuesday, after firming in recent days as traders took shelter from stock market volatility. The yield on the benchmark 10-year Treasury note, which moves inversely to its price and sets the tone for debt pricing around the world, added 0.06 percentage point to 1.79%.
The German Bund’s equivalent yield remained stable at just below zero. The dollar index, which measures the US currency against six others, remained stable.
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