Shares fell on Tuesday after a Federal Reserve governor said the central bank would soon reduce its balance sheet.
In the midday trade, the
Dow Jones Industrial Average
fell by 73 points, or 0.2%, while
fell 0.6%, and the
Federal Reserve Governor Lael Brainard said on Tuesday that the Fed would begin rapidly shrinking its balance sheet in May. This would drive down bond prices and increase their yields. Higher borrowing costs aim to curb inflation by reducing economic demand.
The 10-year Treasury yield jumped to 2.55% from 2.46% earlier on Tuesday, and that’s hitting tech stocks hard. Higher yields on long-term government bonds make future earnings less valuable — and many fast-growing tech companies are valued on the basis that they will produce a portion of their earnings many years into the future.
It may not just be a knee-jerk reaction, as Brainard’s comments indicated the Fed was taking concrete action. Wall Street takes this seriously. “We’ll be watching for more Brainard comments on inflation,” wrote Ian Lyngen, head of US rates strategy at BMO Capital Markets.
The Fed is just one concern among many.
The European Commission is expected to propose new sanctions against Russia, which include a ban on Russian coal and could lead to the closure of Russian road and sea carriers’ access to the European Union. Elsewhere, French Finance Minister Bruno Le Maire said on Tuesday that the 27 EU member countries were determined to impose coal and oil sanctions on Russia. While they would serve as punishment for Russia, they would also contribute to the already high inflation that threatens to curtail consumer spending.
Overall, “the conflict in Ukraine adds more uncertainty, particularly via commodity prices,” wrote Robert Buckland, equity strategist at Citigroup.
The price of WTI crude oil initially rose before falling to just under $103 a barrel on Tuesday, although it is still up around 3% this week.
But even before the news from Russia and the Fed, the S&P 500 was struggling to break above a key level. The S&P 500 recently bottomed out. The index, at just under 4,600, has not been able to sustainably break above that level in recent months.
“From our perspective, the S&P 500 now appears stuck in a holding pattern (between 4,500 and 4,600) after the short-hedging rally has run its course,” wrote David Rosenberg of Rosenberg Research.
Looking ahead, the minutes of the last Federal Reserve meeting will be released on Wednesday. With the market already digesting the news that the Fed will soon reduce its bond holdings, it wouldn’t be too surprising if stocks rallied this week. “There could be a reversal after tomorrow’s minutes,” wrote Andrew Brenner of NatAlliance Securities.
Overseas, the pan-European
increased by 0.2%, while that of Tokyo
rose 0.2% during a quiet session in Asia, where markets in Hong Kong and Shanghai were closed.
Here are five stocks in motion on Tuesday:
(ticker: TWTR) rose 3.7%, building on a 27% jump on Monday after it was announced that
(TSLA) CEO Elon Musk will sit on Twitter’s board, after revealing he had become the social media platform’s largest shareholder with a 9.2% stake.
(CCL) jumped 3.4% after the tour group said the one-week period from March 28 to April 3 was the busiest week for bookings in the company’s history.
(GNRC) gained 1.6% after being upgraded to Buy from Neutral at Goldman Sachs.
(DPZ) fell 0.6% after being downgraded to Market Perform from Outperform in Cowen.
(VFC) slipped 3.2% after being downgraded to equal weight from overweight at Wells Fargo.
Write to Jack Denton at email@example.com and Jacob Sonenshine at firstname.lastname@example.org