BOSTON, March 23 — Treasury yields marched higher yesterday, bringing US stocks with them, as investors digested the increased likelihood of swift interest rate hikes following hawkish comments from the US Federal Reserve.
The Nasdaq led Wall Street’s main indexes higher, rising nearly 2 per cent, as investors bought the dip in technology stocks, including Apple Inc, Microsoft Corp, Amazon.com Inc, Meta Platforms Inc and Alphabet Inc.
The Dow Jones Industrial Average rose 254.87 points, or 0.74 per cent, to 34,807.86 and the S&P 500 gained 50.63 points, or 1.13 per cent, to 4,511.81.
Fed Chair Jerome Powell said on Monday the central bank could move “more aggressively” to raise rates to fight inflation, possibly hiking by more than 25 basis points at one or more meetings this year.
The market is pricing in a 72.2 per cent probability that the Fed will hike the fed fund rate 50 basis points when policymakers meet in May, up from a probability of just over 50 per cent on Monday.
At around 2000 GMT, or 4.00pm ET, the US 10-year Treasury yield was at 2.38 per cent, having hit its highest level since 2019. The 2-year note also ticked up, to yield 2.16 per cent, from 2.13 per cent.
“The degree of difficulty for Jerome Powell’s Fed to stick a soft landing for the economy is about the same as Captain Sullenberger’s heroic emergency landing on the Hudson River,” said Aaron Clark, a portfolio manager at GW&K Investment Management in Boston, referring to the 2009 landing of a US Airways plane after its engines failed.
“The market remains in a tug of war between a policy error causing a recession and a resilient economy with a strong consumer and corporate sector,” Clark wrote in an email.
Stocks also rose in Europe. The STOXX 600 gained 0.85 per cent, having climbed in recent sessions to reach a one-month high. London’s FTSE 100 gained nearly 0.5 per cent.
The MSCI world equity index, which tracks shares in 50 countries, was up approximately 1.1 per cent.
Matthias Scheiber, global head of multiasset portfolio management at Allspring Global Investments in London, said the pickup in stocks could be a case of investors buying the dip, but that growth stocks would struggle if the US 10-year yield moves closer to 2.5 per cent.
“We saw the sharp rise in yields yesterday and we see that continuing today on the long end, so that’s likely to put pressure on equities...it will be hard for equities to have a positive performance.”
JPMorgan took a different view and said that 80 per cent of its clients plan to increase equity exposure, which is a record high.
“With positioning light, sentiment weak and geopolitical risks likely to ease over time, we believe risks are skewed to the upside,” JPMorgan strategists wrote in a note to clients.
“We believe investors should add risk in areas that overshot on the downside such as innovation, tech, biotech, EM/China, and small caps. These segments are pricing in a severe global recession, which will not materialize, in our view.”
The conflict in Ukraine continued to weigh on sentiment. Russia, the US and Britain traded accusations at the United Nations yesterday over the possibility of a chemical weapons attack in Ukraine, but none produced any evidence to back their concerns.
Oil prices pulled back less than 1 per cent yesterday as the dollar strengthened and it looked unlikely that the European Union would pursue an embargo on Russian oil, a day after prices jumped 7 per cent and also rose earlier in the session.
The dollar edged lower yesterday as the boost from Powell’s comments faded and a rise in equities markets help boost risk-on sentiment.
Spot gold dropped 0.7 per cent to US$1,921.73 (RM8,102.97) an ounce, pressured by rising interest rates.
Cryptocurrency bitcoin was up about 3.25 per cent at around US$42,376, adding to gains since its intraday low of US$34,324 on February 24, when Russia invaded Ukraine. — Reuters