Stocks tumbled on Thursday, a day after posting the biggest rally in two years with concerns around inflation and the threat of a recession remaining at the forefront of investors’ minds.
The S&P500 fell -3.57% in broad-based selling with 96% of stocks lower and all sectors negative led by consumer discretionary -5.81%, technology -4.93% and communications -4.08%. The Nasdaq Composite also slumped -4.99%, as did the Dow Jones -3.12% and Russell 2000 -4.04% with the VIX surging +22.74% to 31.20. The move calls into question the initial relief rally seen following the Fed’s meeting on Wednesday where stocks rose after fears of +0.75% rate increases were put to rest, and Wednesday’s gains may have been used as an opportunity for investors to cut risk, turning into a cascade. Adding to the risk-off sentiment was the Bank of England which raised rates +0.25% to 1.0% while warning of double-digit inflation by the end of the year coupled with a shrinking economy and potential for a recession, raising fears of stagflation. Adding to concerns are the U.S. mid-term elections which typically see weaker and more volatile equity markets particularly through to the final three months of the year which historically then enjoy a seasonal period of strength.
The recent trend of selling into rallies remains intact and with so many concerns it’s hard to see this reversing anytime soon, although the “sell everything” move raises the possibility of capitulation, which typically coincides with significant lows where investors throw in the towel. U.S. Treasuries were caught in the “sell everything” moves with yields moving higher across the board with the 2-year rate up +6.5 basis points to 2.708%, as did the 10 and 30-year yields, higher by +10.4 and +7.8 basis points respectively while the U.S. dollar index rose +0.95% completely reversing its slump on Wednesday. In focus on Friday is U.S. non-farm payroll data for April which is forecast to show +380k jobs were added in the month and the unemployment rate edge lower to +3.5% from +3.6% previously.
In Europe equities were also broadly lower, reversing initial gains with the Euro Stoxx 600 down -0.70% weighed by financials -1.75% and consumer discretionary -2.37% while energy outperformed +1.10% on slightly higher oil prices. Major benchmarks in Europe were generally lower with the DAX weakening -0.49%, as did the DAX -0.43% the exception was the FTSE100 which rose +0.13% benefiting from a weaker Pound. The pound declined -2.18% to 1.2356 and the Euro fell -0.75% to 1.0542.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set for a decisively weaker open this morning with ASX200 futures down -111 points or -1.52% to 7,215. The index rose +0.82% on Thursday with 82% of stocks trading higher buoyed by gains in materials +1.45%, real estate +1.65% and technology +2.54%. Shares in QBE were a notable performer, rising +5.5% after it said gross written premium prices rose +7.9% for renewing customers in the March quarter and said the 2022’s combined operating ratio, which measures profit after claim expenses, should finish above the 94% achieved in financial year 2021. Stocks tied to lithium and battery technology were also notable performers with LTR rising +7.72%, as did PLS +7.6% and NVX +7.07%. The Australian dollar reversed Wednesday’s gains to fall -2.04% to 0.7112 while the yield on 10-year government bonds declined -15.1 basis points to 3.39%.
Oil prices edged higher with both WTI and Brent crude +0.73% and +0.96% respectively to US$108.59 and US$111.19 a barrel. Iron ore futures in Singapore climbed +1.65% on Thursday although are trading -1.53% weaker this morning at US$143. Gold edged -0.21% lower to US$1,877 and silver declined -2.05% to US$22.51 as did Bitcoin which fell -8.40% to US$36,456.
Economic data:
- Canadian Unemployment (MoM Apr) 22:30
- U.S. Non-farm Payrolls (MoM Apr) 22:30
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
