Nasdaq index up after sharp drop at noon
US stocks soared on Monday, with the technology-focused Nasdaq Composite Index briefly falling into corrective territory as a massive sell-off in Treasuries trickles into global financial markets.
The Nasdaq Composite, which includes tech giants like Apple and Google’s parent company Alphabet, fell 2.7% earlier today, taking losses from a record November to 10%. Analysts generally view a 10% drop from a recent high as a correction in the markets.
But a rally late in the New York session helped the index post a negligible gain of less than 0.1% at the close, slightly offsetting a 4.5% decline it recorded last week.
The sell-off was propelled by the surge in US government bond yields as investors shed debt in anticipation of Federal Reserve policy tightening.
The yield on the benchmark 10-year Treasury bond has climbed for seven consecutive days to 1.77%, marking its largest increase since the coronavirus pandemic rocked U.S. financial markets in March 2020. It began on March 2020. year around 1.5%.
“These are some of the most aggressive interest rate increases in the past 20 years,” said Solita Marcelli, director of investments for the Americas at UBS Global Wealth Management.
The benchmark S&P 500 stock index ended the day down 0.1%. European markets also fell on Monday, with the Stoxx Europe 600 slipping 1.5%.
The Fed plans to raise interest rates several times this year, from the all-time low reached at the height of the coronavirus crisis almost two years ago. Policymakers have had to take a more aggressive stance to remove the stimulus measures, with consumer prices rising at the fastest annual rate since 1982 and the labor market showing strong signs of recovery.
The change in mood hit stocks of tech companies, which benefited from lockdowns as other industries struggled, and were boosted by low rates that helped investors justify the high and rising valuations of a small group of large companies that thrived during the pandemic.
A closely tracked Goldman Sachs index that tracks shares of loss-making tech companies has fallen more than a tenth since the start of the year.
“As you get more return on cash or bonds, you are less willing to take the risk on volatile and expensive technology stocks,” said Trevor Greetham, Head of Multi-Assets at Royal London Asset Management.
The latest US inflation data is due Wednesday. Economists polled by Refinitiv expect consumer prices in the United States to rise at an annual rate of 7% last month, up from 6.8% in November.
The US unemployment rate fell to a surprisingly low 3.9 percent in December, according to the Department of Labor’s report on non-farm payrolls last week. This came days after minutes from the last Fed meeting showed central bank officials discussed a rate hike “sooner or at a faster pace” than expected.
Goldman Sachs economists expect the Fed to hike rates four times this year, after keeping them close to zero in March 2020 to a measure that lowered corporate finance costs and boosted global equities.
“We continue to see increases in March, June and September, and have now added an increase in December for a total of four in 2022,” Goldman’s Jan Hatzius said in a note to clients.
“The weaker labor market slowdown has made Fed officials more sensitive to the risks of upward inflation and less sensitive to the risks of downward growth.”
The dollar index, which measures the US currency against six others, rose 0.2 percent. In cryptocurrencies, the price of bitcoin briefly fell below $ 40,000 on Monday for the first time since September 2021.
Additional reports by Nicholas Megaw