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Stocks fall further as U.S. yield climb unnerves investors

EconomyJan 10, 2022 05:46PM ET
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2/2 © Reuters. FILE PHOTO: Monitors displaying the stock index prices and Japanese yen exchange rate against the U.S. dollar are seen after the New Year ceremony marking the opening of trading in 2022 at the Tokyo Stock Exchange (TSE), amid the coronavirus disease (COVI 2/2

By Koh Gui Qing

NEW YORK (Reuters) - U.S. stocks fell on Monday despite staging a comeback late in the day, as bets that the U.S. Federal Reserve could raise interest rates as soon as March led investors to pare risky assets and lifted the 10-year Treasury yield to a two-year high.

Monday's drop follows a bruising first week of the year when a strong signal from the Fed that it would tighten policy faster to tackle inflation and then data showing a strong U.S. labor market, unnerved investors who had pushed equities to record highs over the holiday period.

The Dow Jones Industrial Average shed 0.45%, and the S&P 500 lost 0.14%.

Technology stocks, which have soared in the past two years thanks in part to very low interest rates, led the falls early in the day but rallied later in the session to leave the Nasdaq Composite up just 0.05%.

The pan-European STOXX 600 index lost 1.48% and MSCI's gauge of stocks across the globe shed 0.26%.

"The big story of the first week of the new year has been the steady march higher in U.S. treasury yields," said Arthur Hogan, chief market strategist at National Holdings Corp.

Hogan recommended investors put more money in financial, industrial and energy stocks as they will likely benefit from strong economic growth expected in the months ahead.

Some of Wall Street's biggest banks now expect the Federal Reserve to raise interest rates four times this year, and Goldman Sachs (NYSE:GS) sees the Fed beginning the process of reducing its balance sheet size as soon as July.

A busy week sees U.S. inflation data due on Wednesday, which analysts say could show core inflation climbing to its highest in decades at 5.4%, a level that would all but confirm a U.S. rate rise is coming in March. The season of corporate earnings also kicks off this week with the big U.S. banks reporting from Friday onwards. [

Rate futures now imply a greater than 70% chance of a rise to 0.25% in March and at least two more hikes by year end.

FURTHER TO RUN?

Yields on 10-year U.S. Treasury notes hit a high of 1.8080% in early trading, levels last seen in January 2020, having shot up 25 basis points last week in their biggest move since late 2019. [U/S] The yield later retreated to 1.7603%.

GRAPHIC-Ten-year "real" U.S. yields

https://fingfx.thomsonreuters.com/gfx/mkt/egvbkjowdpq/Pasted%20image%201641767281191.png

"We think that the increase in long-dated Treasury yields has further to run," said Nicholas Farr, an economist at Capital Economics.

"Markets may still be underestimating how far the federal funds rate will rise in the next few years, so our forecast is for the 10-year yield to rise by around another 50bp, to 2.25%, by the end of 2023."

The dollar index edged up 0.17% to 95.957. The greenback has failed to find significant support from rising Treasury yields.

The euro stood at $1.13270, down 0.28% on the day.

Oil prices dipped but held onto to recent gains, having climbed 5% last week helped in part by supply disruptions from the unrest in Kazakhstan and outages in Libya. [O/R]

U.S. crude fell 0.85% to $78.23 per barrel and Brent closed at $80.87, down 1.1% on the day.

The shift from risk weighed on cryptocurrencies, and bitcoin last fell 0.21% to $41,788.27

Stocks fall further as U.S. yield climb unnerves investors
 

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Comments (11)
William Smith
William Smith Jan 10, 2022 9:04AM ET
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The next recession will quickly become a depression as inflation caused by printing collapses bbn the system. It's coming.
Fong SH
Fong SH Jan 10, 2022 3:22AM ET
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who cares what's FED is going to say anymore? lol thanks to all their scary news during the last quarter of 2021, my portfolio was full of asian stocks, especially Hang Seng HongKong, thank you FED, now I am 30% upside roaring into 2022. lol
Igi Far
Igi Far Jan 10, 2022 3:22AM ET
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Stupid
Fong SH
Fong SH Jan 10, 2022 3:22AM ET
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Last quarter of 2021 I mean
Fong SH
Fong SH Jan 10, 2022 3:21AM ET
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who cares what's FED is going to say anymore? lol thanks to all their scary news during the last quarter of 2011, my portfolio was full of asian stocks, especially Hang Seng HongKong, thank you FED, now I am 30% upside roaring into 2022. lol
Chris Hall
Chris Hall Jan 10, 2022 12:08AM ET
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the next recession will be caused by wallstreet just like last time... pure greed! and corporations in every aspect have been taking advantage raising housing auto and food more than 30 plus percent... so they milk everything they can out everyone before the next recession hits
Chad RicherThanYou
Chad RicherThanYou Jan 09, 2022 11:03PM ET
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“Hawkish” 🤣🤣 this system requires more debt and borrowing or it all collapses
Elon Musk
Elon Musk Jan 09, 2022 10:37PM ET
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Lol core….Talk about CPI it will be well above 7% on wednesday…Talking “core” as if people doesnt need food and energy
Rob Fordham
Rob Fordham Jan 09, 2022 10:37PM ET
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7 percent what are u basing that on!?
trevor hron
trevor hron Jan 09, 2022 10:37PM ET
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Yeah it’s absolutely ridiculous. Just because they’re volatile doesnt make it any easier on peoples budget. What a Fing joke.
Jatin Patel
Jatin Patel Jan 09, 2022 10:15PM ET
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Time to go to the cyclicals and banks play. Bye Bye high growth with nosebleed valuations.
Rob Fordham
Rob Fordham Jan 09, 2022 10:15PM ET
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That the handbook for sure. But it not like microsoft and google are going to stop making huge profits because of a 2 percent 10 year. If u are a trader i guess maybe u will be better in those for a few months but longer term tech is where growth is no matter what
Zia Ullah Masoom
Zia Ullah Masoom Jan 09, 2022 9:34PM ET
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marlow seay
marlow seay Jan 09, 2022 8:43PM ET
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But
 
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