The S&P 500 and Nasdaq Composite fell in volatile trading on Tuesday, which was turned on its head by Bank of England Governor Andrew Bailey’s comment that the Bank of England’s plan to bail out pension funds hit by rate hikes is on track will end on Friday.
The Nasdaq Composite slipped into a bear market, its second of the year. The S&P 500 and Dow are already in bear markets, defined in Wall Street parlance as a decline of 20% or more from a recent high.
Stocks had opened lower as investors considered how higher interest rates and rising inflation would affect the upcoming earnings season. Shares rose around midday and then reversed course in the final hour of trading following Mr. Bailey’s comments.
The S&P 500 fell 23.55 points, or 0.7%, to 3588.84. The Nasdaq fell 115.91 points, or 1.1%, to 10426.19.
The Dow Jones Industrial Average rose 36.31 points, or 0.1%, to 29239.19, helped by big gains at Amgen Inc. AMGN 5.72% Biotech stock was up $13.29, or 5.7% $245.44, making it the top performer on Tuesday’s Dow.
Mr Bailey’s comments were taken negatively on Wall Street as they raise the prospect of further asset selling by UK pension funds amid sharp hikes in interest rates.
The bond-buying program launched on September 28 was intended to give the funds a “window of opportunity” to sell assets in an orderly fashion, but Mr Bailey said that opportunity would end on October 14.
“You have three days left,” Mr. Bailey said in a note addressed to pension funds. “You have to get this right.”
Some traders said that the earlier midday jump higher was not so much a sign of strength as more a sign of so-called short-covering.
Some traders make money by betting that stocks will fall. They do this by borrowing shares and selling them in the hope of profiting by buying back those shares at a later date at a lower price. When stocks start to rise, those gains can be accelerated by short sellers who cover their bets by buying stocks. But Mr. Bailey’s comments deterred many buyers.
“No one wants to hold a position overnight if they think it will open weaker the next day,” said Mohit Bajaj, director of ETF trading solutions at WallachBeth Capital.
Investors have struggled all year with the effects of decades of high inflation and attempts by the US Federal Reserve to tame it with higher interest rates. Concerns have grown for many over the past few weeks as inflation remains stubbornly high and traders fear the Fed will cool the economy enough to tip it into recession.
“The question now is not if there will be a recession, but when and how bad,” said Justin Wiggs, managing director of equities trading at Stifel Nicolaus. A week ago, traders were hailing the biggest two-day rally in the Dow and S&P 500 in two years, but stocks have fallen steadily ever since. Both the Dow and S&P 500 remain in bear markets.
US inflation data due Thursday will show whether the Fed’s sizeable rate hikes are helping to tame rising consumer prices. A bigger-than-predicted hike could bolster expectations that Fed officials will opt for another outsized 0.75 percentage point hike at their next meeting.
Meanwhile, investors are bracing for the first wave of big corporate earnings reports due this week, which are expected to show companies grappling with high interest rates and weaker consumer demand. PepsiCo reports Wednesday, while financial titans BlackRock, JPMorgan Chase and Morgan Stanley report later in the week.
“The results for the first and second quarters were remarkably good. The third quarter could be the tipping point where we see earnings can’t get any higher and companies face the economic headwinds we’re facing from every possible direction,” said David Donabedian, chief investment officer at CIBC Private Wealth US.
And what’s even more important than the third-quarter results, some investors say, is what guidance company leaders are giving for next year.
Benchmark US Treasury yields continued to rise and came within sight of the 4% mark. The yield on the benchmark 10-year Treasury rose to 3.938%, the second-highest level of the year, from 3.883% on Friday. The US bond market was closed on Monday for the Columbus Day holiday.
On the commodity markets, oil prices weakened as concerns about the economy returned to the fore. Prices rose last week after the Organization of Petroleum Exporting Countries and its Russian-led allies agreed to cut production. On Tuesday, Brent crude, the international oil benchmark, fell 2% to $94.29 a barrel.
Traders worked on the floor of the New York Stock Exchange on Friday.
Photo: Michael Nagle/Zuma Press
Overseas indices collapsed. In Japan, the Nikkei 225 fell 2.6%. Hong Kong’s Hang Seng closed 2.2% lower, hitting its lowest level in more than a decade.
In Europe, the pan-continental Stoxx Europe 600 fell 0.6%, led by losses at its oil & gas and chemical companies.
Write to Will Horner at [email protected]
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