Tech Rout Hits Stocks as Hike Frenzy Boosts Yields: Markets Wrap

The dollar remained at its all-time high. Fueled by hawkish Fed policy and investors in search of a haven from market swoons, the greenback has climbed against counterparts by the most in decades. The move prompted Japan to prop up the currency for the first time since 1998. The Swiss franc dropped the most since 2015 against the euro after a central bank hike proved not enough to satisfy traders’ expectations.

The Fed gave its clearest signal yet that it’s willing to tolerate a recession as the necessary trade-off for regaining control of inflation, with officials signaling a further 1.25 percentage points of tightening before year-end. Norway, Britain and South Africa also followed with hikes of their own as officials rush to get to grips with rampant price increases.

“We see this new even-higher-for-longer rate path as associated with a substantially greater higher likelihood of a hard landing and so not just unambiguously hawkish but unambiguously bad for risk,” Krishna Guha, vice chairman of Evercore ISI.

Read: Mortgage Rates in US Jump to 6.29%, Highest Since October 2008

The S&P 500 could be poised for more downside after breaking through a rare technical indicator, according to Berenberg strategists, including Jonathan Stubbs.

It has traded below its 200-day moving average for over 100 sessions -- a streak that was previously breached only during the tech bubble and the global financial crisis in the past 30 years. In both of those instances, the gauge posted most of its losses after surpassing that level, with the index declining by a further 50% in 2000-2003 and 40% in 2008-2009 before troughing, they said.

Evercore’s chief equity and quantitative strategist Julian Emanuel cut his S&P 500 year-end projection to 3,975 from 4,200 and expects a “full retest” of the June low in the weeks ahead. The target cut accounts for a rising probability of a recession following Fed Chair Jerome Powell’s warning that the rate-hike process won’t be “painless” for the labor and housing markets.

“The bad news is we are still in one of the weakest seasonal windows of the year, especially in a mid-term year,” said Jonathan Krinsky, chief market technician at BTIG. “The good news is that it quickly reverses by mid-October. We think we test or break the June lows before then, which should set up a better entry point for a year-end rally.”

Dennis DeBusschere at 22V Research expects markets to remain volatile as he maintained his neutral, range-bound stance for stocks.

“It’s tough to get long until we get signs of slower underlying demand growth, but tail risk is limited by already tighter financial conditions, lower PEs, and higher implied vol,” he wrote.

Against the current backdrop, Mark Haefele at UBS Global Wealth Management says the environment isn’t suitable for strong directional positioning on overall indexes. However, he advises against retreating to the sidelines, “especially given the drag on cash from high inflation and the challenge of timing a return to markets without missing out on rebounds.”

“Instead, we stay invested but also selective, and focus our preferences on the themes of defensives, income, value, diversification, and security,” he added.

Will the Nasdaq 100 Stock Index hit 10,000 or 14,000 first? This week’s MLIV Pulse survey focuses on technology. It’s brief and we don’t collect your name or any contact information. Please click here to share your views.

Here are some of the main moves in markets:

Stocks

• The S&P 500 fell 0.7% as of 11:34 a.m. New York time
• The Nasdaq 100 fell 1.2%
• The Dow Jones Industrial Average fell 0.3%
• The Stoxx Europe 600 fell 1.8%
• The MSCI World index fell 1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro fell 0.1% to $0.9826
• The British pound was little changed at $1.1260
• The Japanese yen rose 1.3% to 142.16 per dollar

Bonds

• The yield on 10-year Treasuries advanced 16 basis points to 3.69%
• Germany’s 10-year yield advanced eight basis points to 1.98%
• Britain’s 10-year yield advanced 19 basis points to 3.50%

Commodities

• West Texas Intermediate crude rose 1.3% to $84 a barrel
• Gold futures rose 0.3% to $1,680.30 an ounce