Stocks rebounded sharply in the final hour of trading, with the S&P 500 almost erasing a selloff that pushed it to the brink of a bear market earlier Thursday.

The turnaround came as Federal Reserve Bank of San Francisco President Mary Daly told Bloomberg News that a 75-basis-point increase in rates is “not a primary consideration,” while adding that the US is in a strong place and should be able to withstand monetary tightening. For a market that’s been haunted by fears that restrictive policy by major central banks will cause a recession, those comments offered a degree of comfort at the end of a session marked by wild volatility.

The caution born from rising rates held firm Thursday as data showed prices paid to US producers rose more than forecast in April, reinforcing bets the Fed will further tighten policy. While the main American equity indexes have lost more than US$6 trillion since March 29, Mark Mobius told CNBC the S&P 500 is “probably going to go lower,” adding that “we are not at a bottom, but may be at the beginning of one. A bottom needs everyone to give up hope.” For Citigroup Inc. strategists, growth stocks -- including the battered tech sector -- will likely remain under pressure as central banks tighten policy.

The greenback rose against all but one of its major peers amid growth fears. The euro hit a five-year low, the Swiss franc weakened to reach parity with the dollar for first time since 2019 and Hong Kong’s Monetary Authority intervened to defend its currency peg. Only the yen -- a traditional haven that, in an ironic twist, has not acted in that role so much of late -- at one point jumped close to 2 per cent.

Comments:

• “Right now, confidence is shaken among market participants and people are in no mood to take on risk,” wrote Fawad Razaqzada, an analyst at City Index and FOREX.com. “Even when we see periods of relative calm, it doesn’t last very long.”
• “It’s a really hard ride for retail investors, really hard,” said Craig W. Johnson, chief market technician at Piper Sandler.
• “Even though we should reach peak inflation soon, the issue of inflation is not going to subside enough to avoid stagflation from becoming a bigger problem,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Therefore, any near-term bounce should be sold, even if that bounce lasts a couple of weeks.”

The Senate voted to confirm Jerome Powell for a second four-year term as Fed chairman on Thursday, trusting him to tackle the highest inflation to confront the country in decades. The Fed began raising interest rates in March and says it will keep going until price pressures cool, seeking a soft landing that doesn’t crash the economy. But critics doubt the central bank can avoid a recession as it tightens monetary policy that had been eased dramatically during the pandemic.

US mortgage rates jumped again this week, extending a steep climb that is shutting some would-be homebuyers out of the market. The average for a 30-year loan was 5.3 per cent, up from 5.27 per cent last week and the highest since July 2009, Freddie Mac said Thursday. 

Here are key events to watch this week:

• University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.2 per cent
• The Dow Jones Industrial Average fell 0.3 per cent
• The MSCI World index fell 0.8 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.5 per cent
• The euro fell 1.3 per cent to US$1.0373
• The British pound fell 0.5 per cent to US$1.2194
• The Japanese yen rose 1.2 per cent to 128.43 per dollar

Bonds

• The yield on 10-year Treasuries declined five basis points to 2.87 per cent
• Germany’s 10-year yield declined 15 basis points to 0.84 per cent
• Britain’s 10-year yield declined 16 basis points to 1.66 per cent

Commodities

• West Texas Intermediate crude rose 1 per cent to US$106.74 a barrel
• Gold futures fell 1.8 per cent to US$1,821.20 an ounce