(Bloomberg) — The selloff on Wall Street showed signs of abating even as investors grappled with the threat of higher-for-longer interest rates and an Israeli counter-strike.
Most Read from Bloomberg
US equity futures ticked higher, signaling a recovery after the S&P 500 fell more than 1% in the past two sessions. Two-year Treasuries approached 5%. The dollar advanced for a fifth day, its longest run since January.
Economic data continues to underscores US economic strength while conflict in the Mideast fans the risk of higher energy prices and inflation, frustrating hopes for imminent Federal Reserve interest rate cuts. With earnings season underway, there’s growing concern that the mega-cap leaders will struggle to justify their steep valuations.
“Markets are looking for an excuse to take a breather and the combination of rising geopolitical risk alongside inflation fear and Fed anxiety is providing some decent ground for that,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management.
Traders are no longer fully pricing in a Fed rate cut before November, while UBS Group AG strategists warned there may be no pivot at all and that US policymakers will instead embark on a hiking cycle. Treasury 10-year yields have spiked more than 10 basis points to 4.65% since the start of the week.
With stocks and bonds coming under pressure, the dollar pushed higher as investors piled into haven assets. Top Israeli military officials have vowed to respond to Iran’s missile attack despite diplomatic calls for restraint.
Recent data “has given the Fed pause for thought and the market has repriced quite significantly,” said Daniel Loughney, head of fixed income at Mediolanum International Funds. “We have a powerful dynamic whereby US growth and inflation dynamics are mingling with big-picture commodity and supply chain-related inflationary pressures.”
Meanwhile, stocks outside the US were trading in the red, with equities in Europe tumbling 1.2% and Asian peers down 2%.
This year’s record rally has left markets especially vulnerable to a pullback, according to top Wall Street strategists.
A survey from Bank of America Corp. found that investor allocation to equities is at the highest in over two years. Citigroup strategists counted $52 billion of long positions on the S&P 500, 88% of them loss-making.
“Should the market turn negative, the move could be faster and larger due to the large, long positions already in the red,” Citigroup strategist Chris Montagu wrote in a note.
Read more: Wall Street Strategists Say Stocks Pullback Risks Forced Selling
Among individual movers, Tesla Inc. fell as much as 2.6% in premarket trading as two of the electric carmaker’s top executives left in the carmaker’s largest-ever round of job cuts. Morgan Stanley rose 3% in the premarket after reporting wealth management net revenue for the first quarter that beat the average analyst estimate. Its equities trading revenue was also ahead of consensus.
Key events this week:
-
US housing starts, industrial production, Tuesday
-
Fed Vice Chair Philip Jefferson speaks, Tuesday
-
BOE Governor Andrew Bailey speaks, Tuesday
-
IMF publishes its latest world economic outlook, Tuesday
-
Eurozone CPI, Wednesday
-
Fed issues its Beige Book, Wednesday
-
Cleveland Fed President Loretta Mester speaks, Wednesday
-
Fed Governor Michelle Bowman speaks, Wednesday
-
BOE Governor Andrew Bailey speaks, Wednesday
-
Taiwan Semiconductor earnings, Thursday
-
US Conf. Board leading index, existing home sales, initial jobless claims, Thursday
-
Fed Governor Michelle Bowman speaks, Thursday
-
New York Fed President John Williams speaks, Thursday
-
Atlanta Fed President Raphael Bostic speaks, Thursday
-
BOE Deputy Governor Dave Ramsden and ECB Governing Council member Joachim Nagel speak, Friday
-
Chicago Fed President Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
-
S&P 500 futures rose 0.1% as of 8:22 a.m. New York time
-
Nasdaq 100 futures were little changed
-
Futures on the Dow Jones Industrial Average rose 0.5%
-
The Stoxx Europe 600 fell 1.2%
-
The MSCI World index fell 0.5%
Currencies
-
The Bloomberg Dollar Spot Index rose 0.1%
-
The euro rose 0.2% to $1.0642
-
The British pound was little changed at $1.2454
-
The Japanese yen fell 0.2% to 154.64 per dollar
Cryptocurrencies
-
Bitcoin fell 0.3% to $62,976.73
-
Ether fell 0.3% to $3,073.92
Bonds
-
The yield on 10-year Treasuries advanced five basis points to 4.65%
-
Germany’s 10-year yield advanced two basis points to 2.46%
-
Britain’s 10-year yield advanced five basis points to 4.29%
Commodities
-
West Texas Intermediate crude fell 0.6% to $84.93 a barrel
-
Spot gold fell 0.5% to $2,370.55 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Allegra Catelli, Sagarika Jaisinghani, Farah Elbahrawy, Guy Johnson, Sujata Rao and Chiranjivi Chakraborty.
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.