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Stocks Jolted by Recession Fears in Rush for Haven

By Rita Nazareth

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Brutal volatility continued to grip financial markets, roiled by the threat that restrictive policy by major central banks will throw the global economy into a recession.

Stocks traded off session lows, pushing the S&P 500 away from its bear-market threshold, after Federal Reserve Bank of San Francisco President Mary Daly told Bloomberg News that a 75-basis-point increase in rates is “not a primary consideration.”

The caution born from rising rates held firm Thursday as data showed prices paid to US producers rose more than forecast in April, reinforcing bets the Fed will further tighten policy.

While the main American equity indexes have lost more than $6 trillion since March 29, Mark Mobius told CNBC the S&P 500 is “probably going to go lower,” adding that “we are not at a bottom, but may be at the beginning of one. A bottom needs everyone to give up hope.”

For Citigroup Inc. strategists, growth stocks – including the battered tech sector — will likely remain under pressure as central banks tighten policy.

The greenback rose against all but one of its major peers amid growth fears.

The euro hit a five-year low, the Swiss franc weakened to reach parity with the dollar for first time since 2019 and Hong Kong’s Monetary Authority intervened to defend its currency peg.

Only the yen — a traditional haven that, in an ironic twist, has not acted in that role so much of late — at one point jumped close to 2%.

Comments:

  • “Right now, confidence is shaken among market participants and people are in no mood to take on risk,” wrote Fawad Razaqzada, an analyst at City Index and FOREX.com. “Even when we see periods of relative calm, it doesn’t last very long.”
  • “It’s a really hard ride for retail investors, really hard,” said Craig W. Johnson, chief market technician at Piper Sandler.
  • “Even though we should reach peak inflation soon, the issue of inflation is not going to subside enough to avoid stagflation from becoming a bigger problem,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Therefore, any near-term bounce should be sold, even if that bounce lasts a couple of weeks.”

The Senate voted to confirm Jerome Powell for a second four-year term as Fed chairman on Thursday, trusting him to tackle the highest inflation to confront the country in decades.

The Fed began raising interest rates in March and says it will keep going until price pressures cool, seeking a soft landing that doesn’t crash the economy. But critics doubt the central bank can avoid a recession as it tightens monetary policy that had been eased dramatically during the pandemic.

US mortgage rates jumped again this week, extending a steep climb that is shutting some would-be homebuyers out of the market. The average for a 30-year loan was 5.3%, up from 5.27% last week and the highest since July 2009, Freddie Mac said Thursday.

Key Events, Market Moves

Here are key events to watch this week:

  • University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 0.13% as of 4:00 p.m. New York time
  • The Nasdaq rose 0.06%
  • The Dow Jones Industrial Average fell 0.33%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.5%
  • The euro fell 1.3% to $1.0373
  • The British pound fell 0.5% to $1.2190
  • The Japanese yen rose 1.2% to 128.42 per dollar

Bonds

  • The yield on 10-year Treasuries declined six basis points to 2.86%
  • Germany’s 10-year yield declined 15 basis points to 0.84%
  • Britain’s 10-year yield declined 16 basis points to 1.66%

Commodities

  • West Texas Intermediate crude rose 1.1% to $106.86 a barrel
  • Gold futures fell 1.7% to $1,823.10 an ounce
  • (Image: Shutterstock)

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