US stocks fall as traders assess hawkish Fed and Apple earnings

Shares on Wall Street tumbled at the end of a wild week in global markets, as investors anticipated rapid interest rate hikes by the US Federal Reserve and Apple’s upbeat earnings fell short. managed to boost morale.

The U.S. benchmark S&P 500 lost 0.5% in early trades in New York, while the tech-focused Nasdaq Composite fell 0.4%, despite a strong quarterly update. Apple, the largest company in the world by market capitalization.

Stock markets, particularly those on Wall Street, swung sharply this week as investors grappled with a hawkish message from Federal Reserve Chairman Jay Powell following the US central bank’s monetary policy meeting on Wednesday .

Geopolitical tensions as Russian troops gathered on the Ukrainian border also helped push the S&P down more than 9% this month, approaching a technical correction. The Nasdaq was nearly 18% below its November record at Thursday’s close.

“Two factors explain this difficult period for equity markets,” said Christophe Donay, chief strategist at Pictet Wealth Management. “The tensions over Russia and Ukraine contributed maybe a third of the correction and the rest belongs to the Fed.”

Apple reported record quarterly revenue and better-than-expected earnings overnight. The iPhone maker also revealed a lighter hit than analysts had expected due to coronavirus-related semiconductor supply chain issues. Shares of the company added about 3% in early trading on Friday.

Monetary policy concerns, however, remained dominant. Powell on Wednesday declined to rule out raising rates from record highs to combat soaring inflation. Futures markets have priced in about five interest rate hikes this year, starting in March.

Higher interest rates increase borrowing costs for firms and reduce the present value of earnings predicted in investors’ models.

The Fed’s hawkish turn has therefore challenged some investors to rethink portfolios built with the expectation that 2022 will be another year of strong economic rebounds and earnings from the coronavirus shocks in 2020. No later than the mid-September, market prices suggested the Fed would raise rates the most once this year.

“This is a huge regime change,” said Gergely Majoros, member of the investment committee at fund manager Carmignac. “It is difficult to hold convictions.”

US Treasuries, which came under selling pressure as expectations of higher interest rates and lingering inflation reduced the appeal of fixed-income securities, were broadly flat on Friday.

Basic personal consumption expenditure data on Friday showed the Fed’s preferred measure of inflation rose at an annual rate of 4.9% in December, slightly beating economists’ forecasts.

The yield on the two-year Treasury note, which moves inversely to its price and closely follows monetary policy expectations, remained stable at 1.19%. The 10-year yield rose 0.01 percentage point to 1.82%, up sharply from the end of 2021.

The dollar index, which measures the U.S. currency against six others, held steady after hitting its highest level in nearly 18 months on Thursday.

European markets fell overall on Friday, with the regional Stoxx 600 index down 1.6%.

In Asia, Hong Kong’s Hang Seng index fell 1.1%, while Tokyo’s export-heavy Nikkei 225 gained 2.1%, boosted by a stronger dollar.

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Additional reporting by Tommy Stubbington

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