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Wall Street rally fizzles as Fed tightening fears spook investors

EconomyJan 20, 2022 08:31PM ET
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2/2 © Reuters. FILE PHOTO: A man wearing a protective face mask, following an outbreak of the coronavirus, talks on his mobile phone in front of a screen showing the Nikkei index outside a brokerage in Tokyo, Japan, February 26, 2020. REUTERS/Athit Perawongmetha/File Ph 2/2

By Herbert Lash and Huw Jones

NEW YORK/LONDON (Reuters) - A rebound on Wall Street fizzled on Thursday as investors lost conviction that an early rally had legs, with the Nasdaq falling more than 1% and crude oil prices hitting fresh seven-year highs to rekindled fears of inflation and higher interest rates.

Concern that the Federal Reserve will aggressively move to raise rates this year is taking a toll on the market. Investors are anxiously awaiting the U.S. central bank's policy meeting next week for new details on how it will tackle inflation.

Crude prices initially eased before climbing to fresh seven-year highs. The major Wall Street indices sharply pared gains of more than 1% to close about that much lower. The week's big rally in U.S. Treasury yields also showed signs of resuming.

"The rally looked strong on the surface, when you look at prices being higher," said Michael James, managing director of equity trading at Wedbush Securities. "There are more people since the beginning of the year inclined to be sellers on weakness for fear that things keep going further lower."

Strong earnings reports initially helped lift stocks into the black in a broad rally while the major indices in Europe also gained. The broad pan-European FTSEurofirst 300 index closed up 0.51%.

U.S. stocks turned negative late in the session, leading MSCI's all-country world index to fall 0.32%.

On Wall Street, the Dow Jones Industrial Average slid 0.89%, the S&P 500 lost 1.10% and the Nasdaq Composite, in a correction after Wednesday's close, fell 1.30%.

Investors have been concerned about rising rates because they raise borrowing costs and could dent global growth prospects and douse the earnings outlook for companies.

A Reuters poll of economists showed they expect the Fed to tighten monetary policy at a much faster pace than thought a month ago to tame high inflation.

Chair Jerome Powell will stick to the Fed's message of tighter monetary policy next week as inflation has become a hot political issue, said Joe LaVorgna, chief economist for the Americas at Natixis.

"There's no reason for him at the moment to deviate from what clearly has been a more hawkish script. That runs the risk of the markets maybe getting more nervous next week," LaVorgna added.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, rose 1.2 basis points at 1.037%. The yield on 10-year Treasury notes in late trade was down 1.2 basis points at 1.815% after earlier trading higher.

The key catalyst for markets so far in 2022 has been expectations of higher rates as the Fed tightens monetary policy, said Kevin Flanagan, head of fixed income strategy at WisdomTree Investments (NASDAQ:WETF) Inc.

"Given the amount of selling pressure we saw earlier in the week, the market is just consolidating a little bit. Rates don't always move every day in the same direction," Flanagan said.

European Central Bank head Christine Lagarde said euro zone inflation will decrease gradually over the year, adding that the ECB did not need to act as boldly as the Fed because of a different economic situation.

(Graphic on, US tech and bonds: https://fingfx.thomsonreuters.com/gfx/mkt/xmvjobdlepr/US%20tech%20and%20bonds.JPG)

ASIA PERKS UP, UKRAINE EYED

Asian share markets broke a five-day slide, pushing higher on Thursday as China underscored its diverging monetary and economic picture by cutting benchmark mortgage rates.

China's blue-chip CSI300 index rose 0.9% on the day, led by property developers, amid hopes government measures would ease a funding squeeze in the embattled sector, even as another developer warned of default.

Analysts at ING said geopolitical risks, notably the possibility of Russia invading Ukraine, could continue to weigh on global shares, adding to pressure on rising rates concerns.

The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.197% to 95.797, while the yen fell 0.17% at $114.1200. The euro slid 0.27% to $1.1310.

Crude prices rebounded but settled slightly lower. Brent crude settled down $0.06 to $88.38 a barrel. U.S. crude futures slid $0.06 to settle at $86.90 a barrel.

Gold and silver touched fresh two-month highs, lifted by worries surrounding inflation and Russia-Ukraine tensions.

U.S. gold futures settled flat at $1,842.60 an ounce, while silver rose 2.1% to $24.63 an ounce.

Wall Street rally fizzles as Fed tightening fears spook investors
 

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Comments (24)
adriaan kuhn
adriaan kuhn Jan 21, 2022 2:33PM ET
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wallstreet pumped up the market the past 10 years with free money and now theyre trying to get their money back from the crash in march last year
Fong SH
Fong SH Jan 21, 2022 1:30AM ET
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Well, thank you for all your comments here & there, good or bad I take it as an advice. We are not here to create any ugly arguments as this is about investments, nothing else. I am not into any racists' remarks or dislikes as an investor, purely investing, nothing  against who's up against who, whose economy is stronger, bigger & so forth. I think users in here, should be rationale in what they type in here, it;s about investments, nothing up against personal, regions against regions, countries against countries & so forth, it is a bad education for new investors who are learning. As some mentioned, investments now is about politics, that's a unfound truth. Thank you & have a pleasant day.
Ben Taylor
Ben Taylor Jan 20, 2022 5:00PM ET
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Anything to make the market drop. If one of them farts the market drops. Cons.
Steven Turner
Steven Turner Jan 20, 2022 4:57PM ET
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If raises rates they the crazies running the ship. Everyone needs to quit speculating. Markets are fickeled.
Felicity Chevalier
Felicity Chevalier Jan 20, 2022 3:58PM ET
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Tankies running the ship
marlow seay
marlow seay Jan 20, 2022 5:53AM ET
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trap door
Fong SH
Fong SH Jan 20, 2022 3:34AM ET
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We had the monkey disease, chicken flu, bat flu, pig virus, mad cow disease, dengae, the list goes on, but the financial markets came back stronger each time. The Asian financial crisis in the mid 90s, the US Sub Prime Loan crisis, the bonds selloff in the millennium, we all went through that & came back stronger too. What else? The markets will always be there, it just high or low, depends on how you want to risk it. No empire last forever, be rationale, you're an investor, you goal is profits, not about who has the greater economy. Cheers!
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jason xx
jason xx Jan 20, 2022 3:34AM ET
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Forgot SH figured out the secret of life.
Erski Gumby
SB20 Jan 20, 2022 3:34AM ET
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True
Jay Garrelts
Jay Garrelts Jan 20, 2022 3:34AM ET
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Hopefully none of you are falling for this garbage he sure isn’t going back very far in his timeline what he describes is a very short timeline at the same time saying the markets will always be there he sounds like a bot to me
Gus McCrae
Gus McCrae Jan 20, 2022 3:34AM ET
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Jay Garrelts Chinese bot probably. talking indirectly about the demise of the US
Felicity Chevalier
Felicity Chevalier Jan 20, 2022 3:34AM ET
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I sure do hate this capitalism arc of humanity. This is an unironic position a human can take and still think their money will be there after they ruin the world. Some contrived form of techno-anarcho-syndicalism sounds acceptable
Fong SH
Fong SH Jan 20, 2022 3:30AM ET
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Well, I am a neutral investor,not about politics, I go where the money talks lol I am not anti caucasians nor chinese, I go for who's got the best price, safe haven for my investments. It is a true known fact that US deficits is high, ultra high that it going to cross that USD30 trillion mark soon. With 2 of the world largest holders of USD bonds, namely Japan & China, well, no creditor will hold debts for life, one has to balance it, in order to drive their own economy. As of now, China has been reducing holding USD Bonds for the last few years, strengthening her currency RMB against USD, from a massive exchange rate of USD1 = RMB7.80++ to now USD1 = RMB6.35-- which it might reach below RMB6. Just my thoughts. Which economy driven country doesn't have debts? it's everywhere, but, the question is, how well is it managed? I can't answer that question. In regards about this on-going pandemic, well, it's here & there, the world had gone through all kinds of pandemic & came back stronger each time.
jason xx
jason xx Jan 20, 2022 3:30AM ET
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Go on?
Felicity Chevalier
Felicity Chevalier Jan 20, 2022 3:30AM ET
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The markets ARE politics. They are always interrelated. To differentiate them is evidentiary.
Ac Tektrader
Ac Tektrader Jan 20, 2022 2:02AM ET
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fong.... foreign money flows will for the time being always prefer the American markets over the Chinese markets, because China presents a high risk of loss. if you can risk part of your investments in a authoritarian dictatorship that has no set established rules to protect investors against government cronyism and legalized thefts, go for it.
Fong SH
Fong SH Jan 20, 2022 2:02AM ET
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Ac - thank you for your kind advice, well, maybe I have too much money to loose lol
Ac Tektrader
Ac Tektrader Jan 20, 2022 1:51AM ET
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China is due for contra rally then it's lights out ....shades of 2008 coming their way...
 
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