Stocks

U.S. Stocks Turn Positive in Volatile Session

U.S. stocks swung between gains and losses on Tuesday as uncertainty over inflation, interest rates and the economy continued to weigh on the market.

All three major indexes opened higher, with the technology-heavy Nasdaq Composite up 2.8% at one point. By late morning, stocks had mostly erased those gains and appeared on track to extend a brutal three-day slide. But later on Tuesday afternoon, they were in the green again.

The S&P 500 was recently up 0.9%, a day after the broad index slumped 3.2% to its lowest level for the year. The Nasdaq Composite was up 1.8%, while the Dow Jones Industrial Average rose 0.2%. The yield on the benchmark 10-year Treasury note edged down to 2.977% from 3.080% on Monday.

A cocktail of geopolitical risks and economic headwinds is posing the biggest threat to global growth in years and rattling markets. In the U.S., soaring inflation has prompted the Federal Reserve to begin raising interest rates and investors fear the move could tip the economy into recession. 

Global markets are looking equally troubled. In China, resurgent Covid-19 outbreaks and Beijing’s strict approach to fighting them threaten to revive the supply chain bottlenecks that first drove inflation higher. In Europe, the war in Ukraine threatens to keep energy prices elevated and is weighing on the region’s growth.

“People came in this morning expecting a relief rally after being hammered the last few days,” said

Joe Quinlan,

head of CIO Market Strategy for Merrill and Bank of America Private Bank. “But with inflation in the U.S., the Covid challenges in China and the war in Ukraine, rarely have we seen three major market-moving catalysts converge.”

Early Tuesday, some investors snapped up shares that had been battered by those headwinds.

“Everyone at this point is looking to see if we’ve bottomed,” said

Quincy Krosby,

Chief Equity Strategist for LPL Financial. “The instincts are that we haven’t bottomed yet.”

Investors were also looking ahead to Wednesday’s report of fresh consumer-price index data, which is expected to show inflation rose at a slower pace in April than the previous month, Ms. Krosby said. 

Investor sentiment can turn on a dime, she added. In January 2019, a speech by Fed Chairman

Jerome Powell

signaled the central bank would be patient with rate increases—reversing a steep market selloff.   

The market has entered a new era, Mr. Quinlan said, and investors are more inclined to wait for solid evidence that those challenges have subsided before betting the stocks have reached a bottom.

“Investors are very skeptical now,” he said. “They want to see the data. They don’t want to listen to policy makers. Any improvements build the scaffolding for the bottom. But we’re not there yet.” 

Federal Reserve Bank of New York President

John Williams

said Tuesday that he believes the Fed can achieve a “softish landing” for the U.S. economy while raising rates, though the unemployment rate could rise.

“By 2023 you are very likely to see growth slowing very significantly, and the specter of recessions is really starting to loom,” said

Seema Shah,

chief strategist at

Principal Global Investors.

“What we are seeing is the realization that it is going to be very tough for the Fed to get that soft landing just right.”

Investors on Tuesday were welcoming signs that the conflict in Ukraine wasn’t escalating and a planned EU embargo on Russian oil could face delays, Ms. Shah said.

Peloton Interactive

fell 13% after reporting declining sales and mounting losses as the stationary-bike maker struggles with the return to prepandemic consumer habits. 

Biohaven Pharmaceutical Holding Co.

surged by 70% after

Pfizer

said it would buy the rest of the company for around $11.6 billion.

Duke Realty

jumped 6% after

Prologis

said it had made an offer to buy the real-estate investment trust for about $23.7 billion. Prologis fell 4.4%.

Brent crude oil fell 3.6% to $102.34 a barrel. Oil prices had been rising for the past few months, but concerns that China’s lockdowns will sap demand for commodities have taken some steam off the rally.

Demand for oil in China is likely to rebound sharply when restrictions start to ease, though the European Union’s proposed ban on imports of Russian oil remains an overhang, said

Daniel Hynes,

a senior commodity strategist at ANZ in Sydney.

“The fundamentals are still very tilted toward an extremely tight market with certainly risks skewed to further declines in supply over the next three to six months,” Mr. Hynes said. 

Bitcoin prices edged up after a steep selloff. The world’s largest cryptocurrency on Tuesday traded at $31,280.60, according to CoinDesk. That was up from 5 p.m. ET Monday, when it stood at $31,075.70.

Asian equity benchmarks were mixed Tuesday.



Photo:

Kin Cheung/Associated Press

Overseas, the pan-continental Stoxx Europe 600 rose 0.7%. In Asia, Japan’s Nikkei 225 closed 0.6% lower, the Shanghai Composite rose 1.1% and Hong Kong’s Hang Seng Index dropped 1.8%.

“I’d expect near-term market volatility to persist in Asia, as markets deal with lingering supply chain challenges, the likelihood of higher inflation and the prospect of more restrictive global central bank policies,” said

Matt Doody,

an emerging-markets research analyst on Janus Henderson Investors’ global research team.

Janus Henderson’s emerging-market fund has tilted its portfolio away from long-duration growth stocks due to the risks of higher rates, Mr. Doody said. Duration is a measure of how sensitive the prices of bonds or other financial investments are to changes in interest rates, given the timing of future expected cash flows. Fast-growing tech stocks that are valued largely based on far-off forecast profits are longer-duration assets than shares in mature businesses.

Write to Will Horner at william.horner@wsj.com, Dave Sebastian at dave.sebastian@wsj.com and Justin Baer at justin.baer@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Leave a Reply

Your email address will not be published.

Back to top button