Traders find nowhere to hide as assets sink on Fed bets
(Bloomberg) – Friday is proving a disaster for investors as growing bets on Federal Reserve tightening prompted traders to offload risk and safe haven ahead of the weekend.
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The tech-heavy Nasdaq 100 is on track for its worst month since 2008 as short-term Treasuries sold off and oil prices fell as traders anticipated four Fed hikes of one half a point by the end of the year. Even gold falls. The US dollar was the lone gainer, rising 0.7% to touch the highest since June 2020.
“You can sum up today’s market in three letters: BAD,” said Mike Bailey, director of research at FBB Capital Partners. “My feeling is that investors are swinging between Fed stress and earnings, and today they seem more focused on the Fed.”
Fray Risky Corners
The IPOX SPAC index, which tracks the performance of a broad group of special purpose acquisition companies (SPACs), lost more than 3% this week, while a basket of new public companies lost around 10% . For Art Hogan, chief market strategist at National Securities, it makes sense that tech stocks were among the hardest hit, as rising rates put pressure on their valuations.
“We’re back to the old playbook where yields move aggressively, when they have a parabolic day everyone exits all risky assets and high growth names in particular,” he said. he declared by telephone.
Other high-growth names have also come under pressure, with ETF ARK Innovation (ticker ARKK) losing around 11% this week. Meanwhile, a Goldman Sachs basket of long-lived stocks plunged 10%.
Bitcoin, the poster boy for speculation, fell as low as 3.50% on Friday, with the decline bringing it back below $40,000 again.
Stress was evident in the bond market, where short-dated Treasuries — the tenor most sensitive to rate hike expectations — continued to sell off. Yields on 2-year Treasury bills hit 2.78% on Friday, the highest level since December 2018.
More than 200 basis points of tightening is expected by the end of the year, with traders bracing for a series of 50 basis point hikes, the first starting in early May. It would be the largest such increase since 2000.
Oil prices fell as China’s efforts to halt the spread of the coronavirus meant its use of gasoline, diesel and aviation fuel in April is set to drop 20% from a year earlier – the biggest hit to demand since Wuhan went into lockdown more than two years ago. West Texas crude fell 2.5% to $101.22 a barrel.
Gold, generally considered a safe-haven asset, fell 1.3% on Friday after Federal Reserve Chairman Jerome Powell outlined his most aggressive approach to tackling inflation yet, saying on Thursday that a 50 basis point hike was “on the table”. for the policy development meeting in May.
Meanwhile, the dollar gained against all other currencies in the Group of 10 on Friday as Treasury yields climbed. The Australian and New Zealand dollars were the worst performing developed market currencies.
“The move in the dollar also reflects the tone of risk given the headwinds to global economic growth stemming from high inflation, tighter monetary policy in parts of the emerging market space, and geopolitical factors.” , said Stephen Gallo, head of European currency strategy at BMO in London.
Overall, the markets are pricing in a lot of uncertainty, said Victoria Greene, founding partner and chief investment officer at G Squared Private Wealth.
“It’s not a good prospect,” she told BTV. “We’re stuck in a quagmire in Ukraine, we’re seeing increasing sanctions and anger against Russia, the world is getting smaller, we really don’t know where China is going to step in on all of this and regulation and how they’re going to respond to Russia and how we respond to their response to Russia. So yeah, I think it’s time to play defense.
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