(Bloomberg) — Stocks slumped, while traders sought safety in bonds and other haven assets as heightened concern over geopolitical risks added to worries about the outlook for central bank policy.
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About 85% of the companies in the S&P 500 fell on Thursday, while the technology-heavy Nasdaq 100 tumbled 3%. Meanwhile, the market’s so-called fear gauge — the Cboe Volatility Index or VIX — soared. Treasury 10-year yields dropped below 2%, while gold, the Japanese yen and the Swiss franc climbed. Oil declined despite the threat of economic sanctions that could disrupt global supplies. Bitcoin sank.
Read: A $2.2 Trillion Crunch Time Looms for Traders Loaded With Hedges
The U.S. ramped up warnings of a possible Russian attack on Ukraine, with President Joe Biden saying a “false-flag” event may be underway and a top diplomat describing Moscow as moving toward an “imminent invasion.” Russian officials said no invasion of Ukraine was underway and none was planned.
Meantime, Federal Reserve Bank of St. Louis President James Bullard said bringing down inflation may require the central bank to overshoot a neutral target interest-rate, which he sees as about 2%. He repeated his view that the Fed should hike by 100 basis points by July 1, and start a balance-sheet runoff in the second quarter, in response to the fastest inflation in 40 years.
“Investors, wary of any bad news, have been unable to maintain positive momentum in equity markets across the globe as geopolitical risks dominate headlines,” said Peter Essele, head of portfolio management at Commonwealth Financial Network. “A further escalation of tensions in the near term could roil markets due to the potential impact on a tenuous global supply chain, particularly as the Fed prepares for its first-rate hike in years. A perfect storm may be on the horizon if calmer heads don’t prevail.”
American companies are grappling with a historically tight labor market, low unemployment and rising wage inflation putting pressure on profit margins, strategists at Goldman Sachs Group Inc. said. Analysts have cut their margin expectations for 75% of industries and about half of the S&P 500 companies for the first and second quarters, data compiled by Bloomberg Intelligence show.
The Fed needs to deliver a Volcker-style shock to drive down asset prices if it wants to slow inflation without causing a recession, according to Credit Suisse Group AG strategist Zoltan Pozsar. Policy makers should stoke volatility to set off corrections in assets including stocks, houses and Bitcoin, deterring early retirement and driving people into the workforce, he wrote. His comments harked back to the way Paul Volcker broke the back of inflation as Fed chief in the 1980s with massive rate increases.
Read: JPMorgan’s Michele Wants Fed Half-Point Hike to Spur Risk Assets
Corporate highlights:
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Giant chipmaker Nvidia Corp. tumbled after its latest forecast failed to impress investors, while electric-vehicle maker Tesla Inc. slipped after moving toward the bottom of Consumer Reports’ newest annual auto-brand rankings.
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Cisco Systems Inc., the biggest maker of computer networking equipment, climbed on a bullish forecast and after boosting its share buyback program.
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Walmart Inc. topped Wall Street’s quarterly profit expectations and unveiled an upbeat sales outlook, sending stocks higher.
Here are some key events this week:
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U.S. Monetary Policy Forum: speakers including Fed officials Charles Evans, Christopher Waller and Lael Brainard, Friday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
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The S&P 500 fell 2.1% as of 4 p.m. New York time
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The Nasdaq 100 fell 3%
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The Dow Jones Industrial Average fell 1.8%
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The MSCI World index fell 1.5%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro fell 0.1% to $1.1361
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The British pound rose 0.2% to $1.3618
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The Japanese yen rose 0.5% to 114.93 per dollar
Bonds
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The yield on 10-year Treasuries declined eight basis points to 1.96%
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Germany’s 10-year yield declined five basis points to 0.23%
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Britain’s 10-year yield declined six basis points to 1.46%
Commodities
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West Texas Intermediate crude fell 2.2% to $91.56 a barrel
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Gold futures rose 1.5% to $1,900.50 an ounce
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