Stocks Off Lows as Fedspeak Brings Some Relief: Markets Wrap

(Bloomberg) — Stocks came well off session lows as comments from Federal Reserve officials brought some relief to investors worried about a more aggressive pace of rate hikes sinking the economy into a recession.

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The S&P 500 almost wiped out a slide that topped 2% earlier in the day after Fed Governor Christopher Waller and Fed Bank of St. Louis President James Bullard both said they would back a 75-basis-point hike in July after a hot inflation print. The tech-heavy Nasdaq 100 climbed.

Two-year Treasury yields fell as traders shifted their bets away from a full-point hike by the Fed this month. Markets may have gotten a little ahead of themselves in betting on a move of that magnitude, Waller said. The dollar pared gains.

“People are confused as to where the economy is actually heading,” said Victoria Fernandez, chief market strategist at Crossmark Global Investments. “Are we going into recession? Are we not? Is it going to be a short recession? Is it going to be a deep recession? That’s why we’re seeing so much volatility in the market. People just don’t have a clear direction right now.”

Read: Fed Watchdog Clears Powell, Clarida in Trading Scandal Probe

Investors got a reality check from the corporate side Thursday, with JPMorgan Chase & Co. temporarily halting buybacks as earnings fell short of estimates, and Morgan Stanley announcing a plunge in investment-banking revenues. Still, the chiefs of both banks said they aren’t steering their firms toward shelter even as they see global events denting the economy.

Shrinking the Fed’s $8.9 trillion balance sheet will have an effect over time equivalent to no more than three quarter-point interest-rate hikes, according to a new study by a Fed Bank of Atlanta economist. That suggests the asset reductions will have a relative modest effect compared to rate hikes to counter inflation.

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“We remain skeptical that the Fed can pull off simultaneously normalizing its balance sheet, controlling inflation, and avoiding severe market disruptions,” said Richard Saperstein, chief investment officer at Treasury Partners. “We’re increasingly concerned that investors may be forced to endure more downside volatility in this tricky environment.”

Elsewhere, cryptocurrency lender Celsius Network Ltd. filed for Chapter 11 bankruptcy, but Bitcoin took the news in stride. The digital token may be regaining its long-touted appeal as an inflation hedge.

Read: SEC Weighs Waiving Some Rules to Regulate Crypto, Gensler Says

What to watch this week:

• China GDP, Friday

• US business inventories, industrial production, University of Michigan consumer sentiment, Empire manufacturing, retail sales, Friday

• G-20 finance ministers, central bankers meet in Bali, from Friday

• Atlanta Fed President Raphael Bostic speaks, Friday

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Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.4% as of 2:46 p.m. New York time

• The Nasdaq 100 rose 0.3%

• The Dow Jones Industrial Average fell 0.6%

• The MSCI World index fell 0.9%

Currencies

• The Bloomberg Dollar Spot Index rose 0.5%

• The euro fell 0.3% to $1.0033

• The British pound fell 0.5% to $1.1833

• The Japanese yen fell 1% to 138.80 per dollar

Bonds

• The yield on 10-year Treasuries advanced two basis points to 2.96%

• Germany’s 10-year yield advanced three basis points to 1.18%

• Britain’s 10-year yield advanced four basis points to 2.10%

Commodities

• West Texas Intermediate crude rose 0.4% to $96.73 a barrel

• Gold futures fell 1.5% to $1,709.30 an ounce

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