S&P 500 slumps to lowest level in 6 weeks
U.S. stocks dropped for a second session as investors revisited their wagers on peak rates after economic data highlighted persistent inflationary pressures and Federal Reserve officials continued to sound hawkish.
The S&P 500 closed the day at its lowest level in nearly six weeks. The Nasdaq 100 dropped to its lowest since January 30. Both indexes remained lower for most of the session after a gauge of manufacturing improved for the first time in six months and investors balked at prices-paid measures also rising.
Treasury yields stayed higher, with the 10-year rate piercing the closely watched 4 percent level. Fed swaps are now pricing in a peak policy rate of 5.5 percent in September, with some traders betting that the benchmark interest rate could reach 6 percent. A dollar index the most since February 1.
Investors remained cautious on Wednesday after Fed officials reinforced their hawkish stance on Wednesday. Atlanta Fed’s Raphael Bostic called for continued rate hikes to above 5 percent to make sure inflation doesn’t pick up again. Minneapolis Fed President Neel Kashkari, meanwhile, said he’s concerned that there isn’t much of an indication that the central bank’s rate hikes are slowing down the services sector.
“The markets crossed the fine line between expectations and wishful thinking,” said Deborah Cunningham, senior portfolio manager at Federated Hermes. “But investors checked that fantasy within the shortest month of the year. Indeed, change can come quickly after acceptance.”
Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, says the VIX, a measure of volatility in stocks, hasn’t been the most reliable indicator of what’s happening in the markets recently.
“To say that the volatility markets have been strange for the last couple of months is maybe the understatement of the millennium here,” he said on Bloomberg Television. “And a lot of reason the truth is so difficult to discern is because of these zero-days to expiration options, which really are ruling the moves from moment to moment in the markets.”
He says the macro picture will become clearer in the coming weeks, depending on the incoming economic data.
While data showing China’s economy is on track for a stronger recovery had briefly buoyed U.S. stock futures before markets opened, that bounce didn’t sustain during Wednesday’s trading session.
“This is a China story. This is not a global growth story,” said Mike Wilson, chief U.S. equity strategist at Morgan Stanley. “So yes, it’s very good for China equities and maybe some Asian economies that can, that can gear off of that. But not so much the U.S. stock market, which isn’t that geared to China growth.”