Stocks slipped on Monday with last week’s selloff resuming, as investors fretted about the economic impact of Federal Reserve policy and the ramifications of continued Covid-19 lockdowns in China.
Futures for the
Dow Jones Industrial Average
retreated 400 points, or 1.2%, after the index dropped 98 points on Friday to finish at 32,899.
futures signaled a start 1.4% into the red with the
poised to slide 1.6%.
Overseas, the pan-European
slipped 1.5% and Hong Kong’s
Hang Seng Index
A selloff that gathered pace last week looked set to resume Monday as stock-index futures tumbled. The S&P 500 capped its fifth straight week of declines last Friday, the worst run for the index since June 2011, when it fell for six straight weeks.
“Anxiety is stemming from the Fed’s next moves, with uncertainty creeping in about the scale and speed of interest-rate hikes,” said Sophie Lund-Yates, an analyst at broker
“All this comes at the same time as China grapples with ongoing lockdowns and the prevailing economic storm these entail.”
The Federal Reserve is poised to raise interest rates many times this year and next as it fights historically high inflation, having already raised the federal-funds rate a total of 75 basis points between meetings in March and May. Higher rates will cause borrowing costs to surge and will dent economic demand, and investors continue to fear that the move will cause a recession in the U.S.
Against that backdrop, severe Covid-19 restrictions in China continue to rattle markets, with trade data for April showing that annual Chinese export growth fell to 3.9% last month from 14.7% in March. Lockdowns threaten to restrict U.S. companies’ access to supplies, pinching supply chains and threatening to stoke inflation even further.
“The restrictions in Shanghai are already having a chilling effect on economic output there, as well as port activity, or rather the lack of it, as container ships continue to sit off the Chinese coast waiting to be unloaded,” said Michael Hewson, an analyst at broker
“Any prospect of supply-chain concerns easing looks even further away than it was a few months ago.”
Amid rising inflation expectations, bond yields surged. The yield on the benchmark 10-year U.S. Treasury note rose to 3.18% on Monday after ending last week at 3.14%, putting it on track to close at the highest levels since late 2018.
Elevated yields have helped tech stocks underperform, with the tech-heavy Nasdaq sliding more than 23% in 2022 compared with a 14% fall for the S&P 500.
Many tech companies are valued based on their profits years into the future, so their valuations come under pressure as higher yields discount the present value of future cash. And when long-dated bonds return more, that reduces the premium investors expect to get from making riskier bets on stocks compared with safer bond investments, pressuring stock valuations generally.
“We won’t have to wait too long for the next blockbuster event to help shape the debate” around inflation, said Jim Reid, a strategist at
as April consumer price index (CPI) and producer price index (PPI) data loom this week. “U.S. CPI on Wednesday takes center stage this week with PPI the following day.”
Write to Jack Denton at [email protected]
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