US stocks fall as Fed quagmire grips investors

The stock surge that followed the Federal Reserve decision proved short-lived ahead of Friday’s jobs report, with traders worried that officials could struggle to fight inflation amid the threat of a recession.

Just a day after notching the biggest rally in two years, the S&P 500 tumbled, with more than 95% of its companies moving lower. The Nasdaq 100 suffered one of its sharpest U-turns ever. The tech benchmark plunged about 5%, wiping out its post-Fed gains. A selloff in long-end Treasuries pushed the 10-year yield above 3%. The dollar climbed.

Doubts that policy makers can arrest runaway prices rocked markets, with the prospect of stagflation unsettling investors. By pushing back on a jumbo-hike of 75 basis points in June, Fed Chair Jerome Powell beat back traders’ most-aggressive predictions. However, it is still a bumpy road ahead, with pivotal economic data and global developments that could seed doubts about the central bank’s approach. Friday’s jobs reading is expected to show solid payroll growth and wages holding at exceptionally high levels – remaining an enduring source of inflationary pressures.

The swing higher in longer-dated yields certainly matters for the broader economic picture as they influence borrowing costs. Mortgage rates in the US resumed their upward jump, reaching the highest level since August 2009. Separate data Thursday showed that productivity dropped in the first quarter by the most since 1947 as the economy shrank, while labor costs surged and illustrated an extremely tight job market.

Corporate Highlights:

• Shares of e-commerce companies from Etsy Inc. to Shopify Inc. tumbled after weaker-than-expected quarterly earnings and forecasts deepened concern that the pace of online shopping has slowed.
• EBay Inc. gave a lackluster sales and profit outlook for the current quarter, accelerating its decline from the peaks reached when shoppers were stuck at home during the pandemic.
• Elon Musk has secured about $7.1bn of new financing commitments, including from billionaire Larry Ellison, as well as a Saudi prince and Sequoia Capital, to help fund his proposed $44bn takeover of Twitter Inc.

Elsewhere, the pound slumped as investors looked past the Bank of England’s rate increase and turned their focus on forecasts for a recession in 2023. BOE Governor Andrew Bailey said the UK economy is already slowing because of a squeeze on consumer spending power, and that will help reduce inflation next year.

Key events this week: 

US April jobs report, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 3.5% as of 4pm New York time
• The Nasdaq 100 fell 5.1%
• The Dow Jones Industrial Average fell 3.1%
• The MSCI World index fell 2.5%

Currencies

• The Bloomberg Dollar Spot Index rose 0.9%
• The euro fell 0.7% to $1.0550
• The British pound fell 2.1% to $1.2365
• The Japanese yen fell 0.7% to 130.03 per dollar

Bonds

• The yield on 10-year Treasuries advanced 11 basis points to 3.04%
• Germany’s 10-year yield advanced seven basis points to 1.04%
• The UK’s 10-year yield was little changed at 1.96%

Commodities

• West Texas Intermediate crude rose 0.4% to $108.20 a barrel
• Gold futures rose 0.5% to $1,878.60 an ounce

–With assistance from Andreea Papuc, Cecile Gutscher, Denitsa Tsekova, John Viljoen, Vildana Hajric, Isabelle Lee and Peyton Forte.