US stock futures fell and government bond yields rose to new multi-year highs as investors feared additional interest rate hikes and China’s Covid-19 containment measures would weigh on growth.
S&P 500 futures fell 2%, sending major indexes up for another day of losses after the opening bell in New York. Contracts related to the technology-focused Nasdaq 100 Index fell 2.4% while contracts for the Dow Jones Industrial Average fell 1.5%.
US government bonds were sold off again, pushing the yield on the benchmark 10-year Treasury to 3.183% on Monday from 3.124% on Friday. This puts it on track to settle at a new multi-year high. The 10-year yield rose 1.6 percentage points from the end of 2021 through Friday, prompting some investors to reassess valuations of technology and growth stocks. Bond yields rise when prices fall.
“Returns are going up because investors think inflation is out of control,” said Peter Andersen, founder of Boston-based investment firm Andersen Capital Management. “The reality is that we’ve been living in an extraordinarily low price environment for a long time, and it’s normal for the Fed to raise rates, regardless of the inflation numbers,” he added.
The Cboe Volatility Index – the so-called Wall Street fear gauge, also known as VIX – rose to 33.56, its highest closing level since March 8.
Last Wednesday, US bonds and stocks rebounded after the Federal Reserve approved a half percentage point increase in the benchmark lending rate to a target range of 0.75% to 1%. Federal Reserve Chairman Jerome Powell said, Officials did not consider a larger increase at the next central bank meeting. Powell also said that inflation is too high and that the Fed will move quickly to bring it down. He pointed to the personal consumption expenditures price index, which rose by 6.6% in March.
A day after Mr. Powell’s comments, stocks fell sharply and the declines continued into Friday, extending a losing streak for the US market in which the S&P 500 and Nasdaq Composite are now down. Five consecutive weeks. As of last Friday, the Nasdaq is down 22% in the year to date, the S&P 500 is down 13% and the Dow is down 9.5%.
“There was no news from day to day that would cause such a dramatic shift in sentiment over the course of 24 hours. Market volatility is showing that there is significant uncertainty about which direction people think we are headed,” Mr. Andersen said.
The prospect of raising interest rates to combat inflation has some investors worried that such measures will slow economic growth. The political shifts came at a time when Russia’s war against Ukraine and measures to contain the new Covid-19 outbreak in China had clouded expectations.
“We have slowing growth and tightening financial conditions,” said Hani Reda, portfolio manager at PineBridge Investments. “It is the opposite of what we had for the 18 months prior to this year, which was the perfect backdrop for risk markets.”
These concerns have led some money managers to hold the dollar, which is seen as a safer investment in times of volatility, given its status as the world’s reserve currency. The WSJ Dollar Index, which measures the greenback against a basket of 16 other baskets, rose 0.3% on Monday.
In commodities, Brent crude futures fell 2.5% to $109.57 a barrel. High oil prices since the start of Russia’s war against Ukraine have begun to moderate as traders fear that the shutdown to contain the spread of Covid-19 in China will sap global demand.
Bitcoin fell over the weekend and was trading at $3,2998.86 on Monday, 8.5% down from the 5 p.m. ET level on Friday. The popular cryptocurrency has lost more than a quarter of its value in the year-to-date period.
Cryptocurrency stocks fell in pre-market trading on Monday, along with bitcoin. Cryptocurrency exchange
Bitcoin miner shares plunge 4.8%.
Shares fell 7.6%.
Offshore, the Stoxx Europe 600 continental index fell 2%, led by declines in core resources and the travel and leisure sectors.
In Asia, Japan’s Nikkei 225 is down 2.5% on Monday, while Australia’s S&P/ASX 200 is down 1.2%.
China’s CSI 300 Index, which tracks the largest companies listed in Shanghai or Shenzhen, fell 0.8%. Hong Kong markets are closed for a public holiday.
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