Technology Shares Push Higher; Crude Oil Recovers: Markets Wrap
(Bloomberg) -- Technology shares pushed into the green and Treasury yields retreated from the highest levels of the day as investors continued to weigh the risk of inflation with economic growth seen accelerating.
The yield on the benchmark 10-year Treasury rose for a fourth day after the Federal Reserve let a capital break for big banks expire. Crude oil rebounded after tumbling Thursday.
The S&P 500 was mostly lower, with the financial and materials sectors leading declines. JPMorgan Chase & Co. and other banks weighed on the Dow Jones Industrial Average in the wake of the Fed ruling. The tech-heavy Nasdaq 100 rebounded from Thursday’s 3.1% slump, led by Facebook Inc. Traders are bracing for quadruple witching Friday, a major expiration of options and futures contracts that can exacerbate swings in asset prices.
“What we have to watch out for is a persistent rise in inflationary expectations and that’s how the rise in the 10-year Treasury could potentially get out of control,” said David Donabedian, chief investment officer of CIBC Private Wealth Management. “That’s today probably the biggest risk for the stock market.”
Fed Chairman Jerome Powell reiterated in a Wall Street Journal editorial that the central bank will provide aid to the economy ‘for as long as it takes.”
Though the Fed has concluded the threat that Covid-19 poses to the economy isn’t nearly as severe as it was a year ago, the regulator also said that it’s going to soon propose new changes to the so-called supplementary leverage ratio, or SLR. The goal is to address the recent spike in bank reserves that has been triggered by the government’s economic interventions during the pandemic.
“The markets will digest this as banks still have breathing room and we’ll move on, but we’ll keep a watch on how banks respond in terms of their deposit collection and Treasury purchases,” said Peter Boockvar, chief investment officer for Bleakley Advisory Group. “The reason why this issue even became so heated is solely because the Treasury is issuing so much debt to fund the spending habits of Congress, but also because of QE where the Fed is already creating massive amounts of reserves.”
Oil, one of the most-favored reflation trades, gained. It was heading for the biggest weekly slump since October after a sell-off driven by inflation concerns and a cooling physical market.
In Europe, bond yields across the region retreated while the Stoxx Europe 600 index declined, led by banks and retailers. China’s CSI 300 share gauge slumped on acrimonious U.S.-China talks.
Russia’s ruble gained after the country’s central bank unexpectedly raised its policy rate and signaled further tightening. Brazil and Turkey delivered larger-than-expected rate increases this week.
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