Stocks Sink as Bears Take Charge, Dollar Rallies: Markets Wrap
Asian shares are poised for a subdued opening on Tuesday as concerns about China’s property sector re-emerge. Wall Street closed higher and a US bond selloff extended into a fourth week, while a gauge of dollar strength hit its highest level this year.
(Bloomberg) -- US stocks sank to the lowest since early June Tuesday as confidence in the economy stalled leaving investors to contemplate a protracted period of high interest rates. The dollar extended its winning streak for a fifth day.
The S&P 500 Index and the Nasdaq 100 both fell after a report showed consumer confidence in the world’s biggest economy fell to a four-month low. Wall Street’s fear gauge — the Cboe Volatility Index or VIX — ratcheted up, reaching the highest since late May. The MSCI All Country World Index, one of the broadest measures of global equities, fell for an eighth day, matching its longest losing streak in the past decade.
“The market is in the hands of the bears right now,” said Quincy Krosby, chief global strategist for LPL Financial. “It’s a wall of worry, uncertainty hovering over the market. You wouldn’t say that the selloffs have been tremendously dramatic — in fact, they’ve been kind of orderly. But there’s still that uncertainty.”
Data showed consumer confidence dropped to 103 from a revised 108.7 in August, and missing the median estimate of 105.5 in a Bloomberg survey of economists. Separate reports also showed purchases of new homes fell to a five-month low while home prices in the US rose to a record high over the summer as buyers battled over a tight supply of listings.
Costco Wholesale Corp.’s quarterly report showed comparable sales that mostly trailed analyst estimates suggesting shoppers are cutting back on their discretionary spending.
“Consumer attitudes in recent months appear even more sensitive than normal to inflation generally and gasoline prices specifically,” Stephen Stanley, chief US economist at Santander, wrote. “While the Fed is focused mainly on core, the average consumer is spending a substantial portion of their budget on food and energy and are unwilling to ignore those prices.”
Yields on Treasuries drifted back up after reaching decade highs on Monday. A $48 billion Treasury auction of two-year notes was awarded at 5.085%, the highest since 2006. The Bloomberg dollar index advanced, setting a fresh 2023 peak in its strongest close since early December. Oil resumed its climb, moving back above $90 a barrel.
Tech giants, namely Apple Inc., Microsoft Corp., Amazon.com Inc. and Google-parent Alphabet Inc. dragged on the US stock gauges pushing the tech sector down more than 10% from a July peak. The threat of tight policy is undoing some of the market’s biggest gains this year in the high-flying tech stocks. These growth companies are prized for their long-term prospects but hold less appeal when future profits get discounted at higher rates.
Read more: Tech Stocks Enter a Correction as Fed Fear Dents Market Heroes
One Fed speaker after another in the past week has delivered emphatic messages that they will keep policy tighter for longer if the economy is stronger than expected. Federal Reserve Bank of Minneapolis President Neel Kashkari said he expects the US central bank will need to raise interest rates one more time this year.
“Investors are beginning to realize that a ‘higher for longer’ interest rate environment is a likely outcome and are slowly adjusting to the ‘new normal,’” Paul Nolte, a senior wealth manager at Murphy & Sylvest Wealth Management, wrote in a note. “Higher-for-longer has been the mantra of the Fed for a few months. It is only recently that the markets have been taking them at their word.”
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Jamie Dimon, chairman and chief executive of JPMorgan Chase & Co., floated the idea US interest rates could reach 7%, a worst-case scenario that could catch consumers and businesses off-guard. Traders remain focused on an end-of-month deadline ahead of a potential US government shutdown.
Key events this week:
- China industrial profits, Wednesday
- US durable goods, Wednesday
- Eurozone economic confidence, consumer confidence, Thursday
- US initial jobless claims, GDP, Thursday
- Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
- Eurozone CPI, Friday
- Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
- US consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday
- ECB President Christine Lagarde speaks, Friday
- New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
- The S&P 500 fell 1.5% as of 4:01 p.m. New York time
- The Nasdaq 100 fell 1.5%
- The Dow Jones Industrial Average fell 1.1%
- The MSCI World index fell 1.2%
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.2% to $1.0571
- The British pound fell 0.5% to $1.2156
- The Japanese yen fell 0.1% to 149.05 per dollar
- Bitcoin fell 0.2% to $26,243.75
- Ether rose 0.1% to $1,589.06
- The yield on 10-year Treasuries advanced two basis points to 4.55%
- Germany’s 10-year yield advanced one basis point to 2.81%
- Britain’s 10-year yield was little changed at 4.33%
- West Texas Intermediate crude rose 1% to $90.58 a barrel
- Gold futures fell 0.9% to $1,918.50 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Alice Atkins, Richard Henderson, Alex Nicholson and Cecile Gutscher.
©2023 Bloomberg L.P.