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.

Almost 85 per cent of the companies in the S&P 500 fell on Thursday, while the technology-heavy Nasdaq 100 tumbled 3 per cent. Treasury 10-year yields dropped below 2 per cent, 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.

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.

“Markets continue to watch events in Ukraine, cycling back and forth between risk-on with the lessening of tensions and risk-off as tensions increase,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

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 per cent. He repeated his view that the Fed should hike by 100 basis points by July 1, and start a balance-sheet run-off in the second quarter, in response to the fastest inflation in 40 years. 

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 per cent of industries and about half of the S&P 500 companies for the first and second quarters, data compiled by Bloomberg Intelligence show. 

“As we enter the back end of earnings season, stock market fluctuations continue to be driven by two key themes: inflation and Russia,” said Geir Lode, head of global equities at the international business of Federated Hermes. “As the headlines continue to roll in, investors will have to carefully gauge both the inflation and security risk already priced in, as well as the reliability of any political messaging, to prevent any unnecessary knee-jerk trading.”

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.

Corporate highlights:

  • 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.
  • Cisco Systems Inc., the biggest maker of computer networking equipment, climbed on a bullish forecast and after boosting its share buyback program.
  • Walmart Inc. topped Wall Street’s quarterly profit expectations and unveiled an upbeat sales outlook, sending stocks higher.

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 2.1 per cent as of 4 p.m. New York time
  • The Nasdaq 100 fell 3 per cent
  • The Dow Jones Industrial Average fell 1.8 per cent
  • The MSCI World index fell 1.5 per cent

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro fell 0.1 per cent to US$1.1360
  • The British pound rose 0.2 per cent to US$1.3619
  • The Japanese yen rose 0.5 per cent to 114.91 per dollar

Bonds

  • The yield on 10-year Treasuries declined eight basis points to 1.96 per cent
  • Germany’s 10-year yield declined five basis points to 0.23 per cent
  • Britain’s 10-year yield declined six basis points to 1.46 per cent

Commodities

  • West Texas Intermediate crude fell 2.1 per cent to US$91.68 a barrel
  • Gold futures rose 1.6 per cent to US$1,901.10 an ounce