US equities began the month lower after a strong set of data suggested the Federal Reserve has not yet slowed growth enough to bring inflation under control, while Jamie Dimon of JPMorgan Chase & Co. warned that restrictive policies could tip the economy into recession.
The S& P 500 index sank 0.8% as data revealed an unexpected increase in US industrial activity as well as unusually large job vacancies, raising concerns that the Fed will need to tighten its monetary policy to rein in price inflation.
After Dimon indicated that as conditions tighten, private borrowers may become stranded, financial firms in the index fell 1.7 per cent.
The yield on 10-year Treasuries jumped as traders increased their bets on rate rises. Oil prices climbed ahead of a meeting of OPEC+ to discuss supply policy.
And technology stocks outperformed, with Salesforce Inc. gaining 10%. After boosting its prediction, the business-software behemoth soared the most in nearly two years, indicating that demand is strong.
The positive data arrived in a market where investors are worried that the Fed’s tightening policies could trigger a recession, a concern echoed by Dimon’s remarks.
Since March, the central bank has hiked rates twice, and it has indicated that it will raise rates by another 50 basis points in its next two sessions.
While certain economic data has begun to decline, according to the Fed’s Beige Book, others are still strong enough that investors believe the odds of a third 50-point hike are increasing.
On Wednesday, St. Louis Fed President James Bullard urged policymakers to hike interest rates rapidly before cutting them later.
On Bloomberg TV, Greg Boutle, US head of equities and derivative strategy at BNP Paribas, said, “We now find ourselves in a little bit more no man’s land.”
“We’re in the midst of a bear market, but we haven’t yet seen recession present itself in macro data.”
As a result, we continue to believe that the US economy can have a soft rather than a severe landing.”
According to Citigroup Inc. strategists, the pain for global equity markets may not be over yet after a difficult first five months of 2022.
In a note, the strategists led by Jamie Fahy wrote that the prospect of downward revisions to earnings estimates is the latest headwind for stock investors, who have already been rattled by runaway inflation and the potential impact of central-bank tightening aimed at controlling it.
ChargePoint Holdings Inc. fell among the individual stock moves, as analysts noted that the EV charging network company’s margins were under pressure owing to increased costs and supply-chain disruption.
Delta Air Lines Inc. also dipped after improving its revenue forecast but announced that it will likely not expand capacity until the end of the year.
Following euro-zone numbers released Tuesday that showed a record rise in consumer prices, Europe’s Stoxx 600 Index continued to fall, bolstering the case for the European Central Bank to raise interest rates.
Meanwhile, in the United States, Treasury Secretary Janet Yellen admitted for the first time that she was wrong last year when she predicted that rising inflation would not be a long-term problem.
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“In the big picture, the market has priced in an economic slowdown but not a recession,” said Ed Clissold and Thanh Nguyen of Ned Davis Research in a note.
“The timing and amount of any Fed shift will be the most important element in determining whether the rally can last into the second half of the year.”
Earnings estimates are vulnerable to more downward adjustments, which is another challenge for the market.”
