(Bloomberg) – Tech stocks led the way lower on Wednesday as the latest round of speakers from the Federal Reserve reinforced the idea that interest rates will have to keep rising to stifle inflation.
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While this is all about data, as Jerome Powell pointed out, the reality is that markets are still very vulnerable to rate volatility, said Nicholas Colas of DataTrek. New York Fed Bank President John Williams noted that peak rate forecasts are still “very reasonable,” adding that policy may need to be tight for a few years. Fed Governor Lisa Cook echoed his comments, saying “we’re not done yet.”
Traders continued to buy a put spread on overnight secured funding rate options, targeting a Fed policy rate of 6% by September. That’s almost a full percentage point higher than the 5.1% level for this month currently priced in swaps. The Fed’s benchmark is currently between 4.5% and 4.75%.
“Even though we moved earlier this year from ‘cautious’ to ‘cautiously constructive’, adding stocks for the first time in 18 months, we continue to expect market volatility as news flows on earnings, inflation, the economy and the Fed’s rebound from bullish to bearish and back,” wrote Stephen Auth, director of equity investments at Federated Hermes.
The recent rally in stocks amid deteriorating earnings and economic expectations has produced “massive disconnects” that threaten market stability, warned Lisa Shalett of Morgan Stanley Wealth Management.
While the lag is increasingly being touted as a sign the market is predicting a soft landing for the economy despite continued Fed tightening, Shalett is skeptical. She attributed the latest rally in stocks to potentially short-term technical factors, such as short sellers buying up stocks to cover bearish positions and the seasonal tendency for investors to flock to the market’s biggest losers of the year. former.
The S&P 500 fell back after a rally that recently put the benchmark in overbought territory. The Nasdaq 100 underperformed, with Google parent Alphabet Inc. falling about 7% and other big names like Apple Inc. and Amazon.com Inc. weighing heavily on the megacap space. Yet a takeover of Microsoft Corp. boosted the software giant’s market value to $2 trillion.
Company Highlights:
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Chipotle Mexican Grill Inc.’s main sales metric fell short of Wall Street expectations, showing that stubbornly high inflation is impacting the burrito chain’s operations.
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Uber Technologies Inc. reported revenue above estimates, suggesting rising inflation hasn’t stopped consumers from ordering more takeout or hailing a ride.
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Under Armor Inc. raised its profit forecast after a strong holiday season and better-than-expected inventory management.
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Yum! Brands Inc. reported higher-than-expected earnings as the company’s Taco Bell business attracted consumers that may be down due to inflation.
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The New York Times Co. reported fourth-quarter sales and earnings that beat analysts’ expectations, helped by accelerating growth in its digital subscriptions.
Elsewhere, the Turkish stock exchange suspended trading for the first time in 24 years following a selloff that wiped billions of dollars off the value of its main stock gauge following two devastating earthquakes. Trading in Turkish stocks, futures and options contracts will resume on February 15.
The key events:
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First unemployment claims in the United States, Thursday
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ECB President Christine Lagarde attends EU leaders’ summit on Thursday
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Bank of England Governor Andrew Bailey appears before the Treasury Committee on Thursday
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American University of Michigan Consumer Sentiment Friday
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The Fed’s Christopher Waller and Patrick Harker speak on Friday
Some of the major movements in the markets:
Shares
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The S&P 500 fell 0.6% at 10:58 a.m. PT
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The Nasdaq 100 fell 1.2%
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The Dow Jones Industrial Average fell 0.2%
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The Stoxx Europe 600 rose 0.4%
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The MSCI World index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0725
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The British pound rose 0.3% to $1.2082
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The Japanese yen fell 0.3% to 131.45 per dollar
Cryptocurrencies
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Bitcoin fell 1.4% to $22,875.66
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Ether fell 0.9% to $1,652.98
Obligations
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The 10-year Treasury yield was little changed at 3.68%
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The German 10-year rate rose three basis points to 2.38%
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The UK 10-year yield rose one basis point to 3.33%
Goods
This story was produced with assistance from Bloomberg Automation.
–With help from Peyton Forte.
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