A market correction of 15% would not be surprising: Manulife’s Michael Scanlon
Stocks rose as a report showing the fastest inflation in about four decades was roughly in line with market expectations, with traders keeping their bets on a rate hike in March.
Commodity and retail companies led gains in the S&P 500. Electric-vehicle maker Tesla Inc. and Google’s parent Alphabet Inc. paced a rally in megacaps. Financial shares underperformed, with major banks set to report their results Friday. Goldman Sachs Group Inc. and Morgan Stanley tumbled, while Jefferies Financial Group Inc. slid after saying fixed-income trading revenue plunged 50 per cent from a year earlier. The Bloomberg Dollar Spot Index had its worst session since May.
The bond market reaction to the inflation data was fairly muted in part because yields have already surged since the start of the year, with traders bracing for the Federal Reserve to begin raising rates. Ahead of the report, positioning in the broad Treasury market was the most net-bearish since late 2017, according to the latest survey by JPMorgan Chase & Co.
The U.S. economy grew at a modest pace in the final weeks of last year, but businesses’ expectations for growth over the next several months have cooled in some places, the Fed said in its Beige Book survey. During a Wall Street Journal Live event streamed on Twitter, Fed Bank of Cleveland President Loretta Mester said “the case is very compelling that we remove accommodation.”
- “Wall Street was worried that a much hotter inflation report could have not only cemented four Fed rate hikes this year, but potentially made the May FOMC meeting a possibility for when the balance-sheet runoff could start,” said Edward Moya, senior market analyst at Oanda, referring to the Federal Open Market Committee.
- “Fears about higher and persistent inflation have been well telegraphed in recent months. Today’s rise in the rate of inflation falls within investors’ expectations,” said Richard Flynn, managing director at Charles Schwab U.K.
- “Bond markets are currently pricing in about a 90 per cent probability that the Fed delivers four rate hikes in 2022, and today’s inflation data should not dissuade the central bank from delivering the first of those hikes in March,” said Jai Malhi, global market strategist at J.P. Morgan Asset Management.
Some of the main moves in markets:
- The S&P 500 rose 0.3 per cent as of 4 p.m. New York time
- The Nasdaq 100 rose 0.4 per cent
- The Dow Jones Industrial Average rose 0.1 per cent
- The MSCI World index rose 0.9 per cent
- The Bloomberg Dollar Spot Index fell 0.6 per cent
- The euro rose 0.7 per cent to US$1.1449
- The British pound rose 0.6 per cent to US$1.3711
- The Japanese yen rose 0.7 per cent to 114.52 per dollar
- The yield on 10-year Treasuries was little changed at 1.73 per cent
- Germany’s 10-year yield declined three basis points to -0.06 per cent
- Britain’s 10-year yield declined three basis points to 1.14 per cent
- West Texas Intermediate crude rose 1.9 per cent to US$82.75 a barrel
- Gold futures rose 0.5 per cent to US$1,827 an ounce