On Thursday, stock markets around the world incurred losses as traders rushed to relocate their funds into safe-haven assets and government bonds amid renewed geopolitical concerns. speculators are also worried about the consequences of the monetary policy tightening by the Fed
The shares of many companies included in the S&P 500 index fell drastically. The Nasdaq 100 index sank by 2%. Chipmaker Nvidia Corp. shares slid down after a weak earnings report. Shares of electric car maker Tesla Inc. declined after Consumer Reports dropped the company in its rankings. The 10-year government bond yields decreased below 2%, while gold, the yen, and the Swiss franc appreciated. Oil prices have declined despite the risks of sanctions that could disrupt global supplies.
US Secretary of State Anthony Blinken proposed a meeting with Russia's Foreign Minister Sergey Lavrov in Europe next week as tensions over Russia's military buildup near Ukraine intensified. President Joe Biden warned on Thursday that there is a "very high" risk Russia will invade Ukraine in the coming days. The Kremlin has denied plans to invade Ukraine many times.
According to Freddie Mac, mortgage rates jumped. The average for a 30-year loan totaled 3.92%, up from 3.69% last week and the highest since May 2019. US new home construction fell in January for the first time in four months. The initial jobless claims unexpectedly increased.
"US companies are grappling with a historically tight labor market, low unemployment and rising wage inflation putting pressure on profit margins," strategists at Goldman Sachs Group Inc. noted.
Analysts downgraded their profit expectations for 75% of industries and about half of the companies in the S&P 500 index for the first and second quarters. Companies are struggling to protect net profit in times of high consumer prices. In addition, inflation hit the highest level in the last four decades and higher borrowing costs may limit profit growth.
"As we enter the back end of earnings season, stock market fluctuations continue to be driven by two key themes: inflation and Russia," Geir Lode, the head of global equities at the international business of Federated Hermes, pointed out. "As the headlines continue to roll in, investors will have to carefully gauge both the inflation and security risk already priced in, as well as the reliability of any political messaging, to prevent any unnecessary knee-jerk trading."
According to Credit Suisse Group AG strategist Zoltan Pozsar, the Fed needs to deliver "a Volcker-style shock to drive down asset prices if it wants to slow inflation without causing a recession." He said that policymakers should stir up volatility to trigger a correction in assets, including stocks, houses, and bitcoin, deterring early retirement and encouraging people to work. His comments go back to how Paul Volcker curbed inflation as head of the Fed in the 1980s with massive rate increases.
Here are some key events today:
- EU leaders meeting;
- Fed meeting minutes.
