Big tech-long bond trade reasserts itself on Fed
The reflation trade that has ruled markets for most of 2021 was in retreat Thursday, replaced by a stodgier group of winners that included giant cash-spewing technology companies and longer-dated bonds. The reordering, including a fifth day of losses in commodities, came after Federal Reserve officials signaled theyre preparing to slow stimulus.
Apple, Nvidia and Microsoft helped push the tech-heavy Nasdaq 100 to a record high as investors rotated from cyclical stocks. The benchmark S&P 500 Index finished slightly in the red, while the Dow Jones industrial average slumped. Yields on longer-maturity Treasuries tumbled amid speculation investors were unwinding curve steeping trades. The Bloomberg Dollar Spot Index also rose for a fifth day, the longest winning streak since March 2020, making commodities that are priced in the currency more expensive.
"Money is just rotating from cyclicals and other reopening plays, it's all about growth now," said Haris Khurshid, portfolio manager at Fate Capital Management. "We're seeing money being put back into growth-at-a-reasonable-price related names."
Federal Reserve Chair Jerome Powell acknowledged the risks of inflation and said Wednesday that policymakers had begun a discussion about scaling back bond purchases. Policymakers' dot plot showed they anticipate two rate increases by the end of 2023, a faster-than-expected pace of tightening. This marked a turning point in the Fed's communication to global markets, which had so far been ultra-dovish.
While Powell downplayed the risk of any immediate rate increase, some investors interpreted his comments as preparing markets for a hawkish tilt and an eventual tapering. His remarks followed the Fed's latest projections, which included upward revisions to its outlook for inflation and interest rates.
"2023 is a long way off and I think we've already started to see markets stabilize," said Chris Gaffney, president of world markets at TIAA Bank. "This economic environment is still an excellent environment for companies."
Elsewhere, CureVac NV plunged 43% in German trading after a study found that its coronavirus vaccine fell short of targets. The findings, though preliminary, throw the future of the vaccine into question as wealthy nations around the world move swiftly to inoculate their populations with shots already available.
Copper fell in London to the lowest in two months. The rally in metals has stalled in recent weeks and copper has retreated from last month's record as concerns about cost pressures spurred expectations stimulus that had been supporting the global recovery would be scaled back. Copper producers Freeport-McMoran and Newmont slumped.
These are some of the main moves in markets:
- The S&P 500 was little changed as of 4 p.m. EDT
- The Nasdaq 100 rose 1.3% to a record high
- The Dow Jones industrial average fell 0.6%, falling for the fourth straight day, the longest losing streak since Jan. 27
- The MSCI World index fell 0.5%, more than any closing loss since May 19
- The Bloomberg Dollar Spot Index rose 0.6%, climbing for the fifth straight day, the longest winning streak since March 23, 2020
- The euro fell 0.8% to the lowest since April 9
- The British pound fell 0.5% to $1.3921
- The Japanese yen surged 0.4%, more than any closing gain since June 4
- The yield on 10-year Treasurys declined six basis points, more than any closing loss since June 4
- Germany's 10-year yield advanced five basis points, more than any closing gain since March 3
- Britain's 10-year yield advanced four basis points, more than any closing gain since June 3
- West Texas Intermediate crude fell 1.6% to $70.97 a barrel
- Gold futures fell 4.7%, the most in about 10 months