Hawkish Fed Sparks Tech Rout, Treasury Selloff: Markets Wrap

(Bloomberg) -- U.S. equities deepened losses after minutes from the Federal Reserve flagged the chance of earlier and faster interest rate hikes.

The S&P 500 fell 1.9%, led by losses in real estate, while the Nasdaq 100 shed 3.1% as traders increased conviction the U.S. central bank will increase rates at least three times this year. The 10-year Treasury yield climbed to 1.71% the highest since April. The dollar was little changed.

“Powell was as explicit as a Fed chair can be at the conclusion of the last meeting,” John Lynch, chief investment officer for Comerica Wealth Management, said. “Statement and presser were a big shift with an accelerated taper and plans for three hikes in 2022.”

Technology stocks plunged for a second day as rising Treasury yields added to growth concerns. Earlier in the session, the tech rout spread to Asia, with a gauge of Chinese names listed in Hong Kong at a six-year low. However, Europe was mostly spared, with the Stoxx Europe 600 drifting to a record.

“At first blush the December FOMC minutes read hawkish, and the market reaction supports this,” said Cliff Hodge, chief investment officer for Cornerstone Wealth. “The fact that FOMC participants are discussing faster and more aggressive rate hikes, alongside a faster pace of balance sheet normalization than the last hiking, indicate that the Fed put for the stock market has been repriced lower.”

Markets have largely turned their attention to tightening monetary policy, however, concerns persist about the omicron variant's threat to global growth. Hong Kong reimposed social curbs and halted flights from eight countries. Meanwhile, U.S. school closings are accelerating as case counts soar. 

“Keep in mind the timing of the [FOMC] meeting -- even a few weeks ago we were in a very different place than we are now when it comes to omicron spreading. And while most predict a somewhat limited effect on the economy, it remains to be seen if the virus will overshadow the drive to curb inflation,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial.

So far, data suggest the U.S. economy is maintaining its resiliency in the face of the variant. Ahead of Friday's U.S. payrolls, a private jobs report Wednesday showed U.S. companies in December added the most jobs in seven months, indicating employers were able to fill a near-record number of open positions. 

Bitcoin tumbled 4.5% to $44,100, the lowest since its early-December weekend flash crash. Gold was weaker and oil in New York pared back gains. 

What to watch this week:

• Fed's Bullard discusses the U.S. economy and monetary policy in an event on Thursday
• Fed's Daly discusses monetary policy on a panel Friday
• ECB's Schnabel speaks on a panel Saturday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.9% as of 4:03 p.m. New York time
• The Nasdaq 100 fell 3.1%
• The Dow Jones Industrial Average fell 1.1%
• The MSCI World index fell 1.4%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.2% to $1.1310
• The British pound rose 0.1% to $1.3549
• The Japanese yen was little changed at 116.12 per dollar

Bonds

• The yield on 10-year Treasuries advanced five basis points to 1.70%
• Germany's 10-year yield advanced four basis points to -0.08%
• Britain's 10-year yield was little changed at 1.09%

Commodities

• West Texas Intermediate crude was little changed
• Gold futures fell 0.3% to $1,809.70 an ounce

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