(Bloomberg) -- US stocks declined for a third day, with investors concerned that the Federal Reserve’s resolve to keep raising rates could tip the economy into a recession.
The S&P 500 and the tech-heavy Nasdaq 100 fell more than 1% each. The quarterly triple witching expiration of equity derivatives is also amplifying market moves on Friday.
Short-term Treasuries rallied while long-dated bonds pared losses after Purchasing Managers’ Index indicators showed a contraction in the services and manufacturing sectors. The dollar fluctuated.
Risk assets have taken a hit since the Fed and the European Central Bank reaffirmed rates will go higher for longer until inflation falls back to their targets. This belied market expectations for a lower peak rate and potential rate cuts in 2023 and also clouded the growth outlook. Economists now see a 60% probability of recession in the US and an 80% chance in Europe.
New York Fed President John Williams further bruised sentiment on Friday after he said on Bloomberg Television that a tight labor market was likely to keep inflation high and warrant more rate increases. San Francisco Fed President Mary Daly was also hawkish on Friday when she reiterated the Fed’s stance and said that she doesn’t know why markets are so optimistic on inflation.
Read More: Daly Says Fed Still Has a ‘Long Way’ to Go to Defeat Inflation
“This is the central problem for equities in the short run and the reason stocks are selling off: we’re seeing a drop in headline inflation, but services and wage inflation remain sticky and that’s really the Fed’s focus,” said Alec Young, chief investment strategist at MAPsignals.
Markets have been wrong about the Fed several times this year, and have been forced to adjust their expectations accordingly, Jim Bianco, Bianco Research founder said on Bloomberg Television. If that continues, markets are going to have a tough time, he said.
“The divergence between the market and the Fed is one of the largest we’ve ever seen,” Bianco said. “So next year, 2023, is going to be a year where somebody has got to give.”
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.6% as of 2:05 p.m. New York time
- The Nasdaq 100 fell 1.3%
- The Dow Jones Industrial Average fell 1.4%
- The MSCI World index fell 2.4%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.0613
- The British pound was little changed at $1.2174
- The Japanese yen rose 1% to 136.41 per dollar
Cryptocurrencies
- Bitcoin fell 3.3% to $16,824.62
- Ether fell 5.2% to $1,198.96
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.47%
- Germany’s 10-year yield advanced seven basis points to 2.15%
- Britain’s 10-year yield advanced nine basis points to 3.33%
Commodities
- West Texas Intermediate crude fell 2.2% to $74.42 a barrel
- Gold futures rose 0.8% to $1,801.70 an ounce
This story was produced with the assistance of Bloomberg Automation.
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
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