U.S. stocks fell Thursday in a choppy trading session, dragged down by investor worries about the impact the Federal Reserve would have on markets if it raises interest rates faster than once anticipated.

All three major U.S. indexes fell toward the end of the session, erasing intraday gains. The S&P 500 and the technology-heavy Nasdaq Composite both declined 0.1% each in 4 p.m. trading. The Dow Jones Industrial Average lost about 170 points, or 0.5%.

Markets have kicked off 2022 with choppy trading this week. Volatility accelerated Wednesday after minutes of the Fed’s most recent meeting showed officials eyeing a faster timetable for raising rates. That sent major indexes including the Nasdaq falling, with the index posting its biggest daily loss since February.

The choppiness continued on Thursday, with major U.S. indexes swinging between gains and losses for portions of the session.

Treasury yields rose for a fourth consecutive day, reflecting investors’ conviction that the fast-spreading Omicron variant won’t stop the Fed tightening monetary policy to tame inflation. The yield on the 10-year Treasury note climbed to 1.733%, up from 1.703% Wednesday.

Among the S&P 500’s 11 sectors, the energy and financials sectors emerged as leaders, rising 2.5% and 1.6%, respectively. Bank of America, Wells Fargo and Citigroup each rose nearly 2% or more, getting a boost from rising bond yields.

Small-cap stocks were also a bright spot. The Russell 2000 index, which measures the performance of such companies, rose 0.5%

Choppiness plagued technology and growth stocks. Tesla lost 2.2%, paring steeper losses earlier in the session. Netflix dropped 2.2%. Facebook parent Meta Platforms jumped 3.3%.

Fund manager Cathie Wood’s flagship ARK Innovation exchange-traded fund lost 0.4%. Meme stocks traded in mixed territory with GameStop rising 0.8% and AMC Entertainment losing 1.5%. Stocks popular among individual investors are off to a rocky start this year.

Cryptocurrencies edged lower. Bitcoin fell 1% to about $43,212 Thursday, according to CoinDesk, compared with its value at 5 p.m. Wednesday.

“As you transition from maximum liquidity to policy that’s becoming less accommodative, you want less exposure to those more speculative areas of the market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. “One of our main theses for coming into this year is that we are positive yet realistic. On the positive side it’s that we still think markets have upside based on a solid economy and strong profits. But the realistic side is that…we expect more normal pullbacks.”

Investors are bracing for the possibility of a volatile spell for tech stocks, which have powered the market higher since the early-pandemic slump in 2020. Shares of companies such as Apple and Microsoft have benefited from low interest rates on top of blockbuster earnings helped by the shift to home working.

Investors are bracing for a volatile spell for tech stocks.

Photo: justin lane/Shutterstock

Rates, however, look set to increase, potentially as soon as March. Although investors say stocks can continue to rise in a period of rising rates that reflect a growing economy, tech shares and momentum stocks such as Tesla are seen as vulnerable.

“We could be in for a rough ride,” said Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management. Mr. Andersen expects the volatility to last at least until tech companies begin to report earnings later this month, which he said could encourage investors to buy those stocks back.

Mr. Andersen sees the selloff as a buying opportunity but intends to target the broad market and European banks that stand to benefit when rates rise, rather than U.S. tech.

Money managers say the catalyst for Wednesday’s selloff and the market’s continued volatility Thursday was the publication of minutes from the Fed’s December policy meeting. They showed officials believed rising inflation and a tight labor market could call for lifting short-term rates “sooner or at a faster pace than participants had earlier anticipated.”

Some officials also thought the Fed should start shrinking its $8.76 trillion portfolio of bonds and other assets relatively soon after beginning to raise rates, the minutes said. Investors pushed yields on government bonds higher. In turn, that hurt tech stocks whose future cash flows are worth less in today’s terms when a higher discount rate is applied.

Traders in interest-rate futures are pricing in a 71% chance that the Fed will raise its short-term target rate from its range of 0% to 0.25% by the end of its March meeting. That is up from about 32% a month ago, shortly after Omicron emerged, according to CME Group data.

On the economic front, Labor Department data showed there were 207,000 initial jobless claims, a proxy for layoffs, last week. A tightening labor market is one factor behind the Fed’s pivot toward raising rates sooner than the central bank had previously signaled.

The Labor Department’s December jobs report will be issued Friday. Economists surveyed by The Wall Street Journal are expecting the U.S. to have added 422,000 jobs.

While the SEC hasn’t announced major actions against big crypto exchanges, the commission has threatened to sue companies offering crypto lending. WSJ’s Dion Rabouin explains why this one part of the crypto market has drawn such a strong reaction. Photo: Mark Lennihan/Associated Press

Commodity markets were mixed Thursday. Brent-crude futures, the benchmark in energy markets, rose 1.5% to $81.99 a barrel after violence erupted in Kazakhstan, a major oil producer. Precious metals, which typically fall when interest rates rise, lost ground, with silver dropping 4.2% to $22.17 a troy ounce.

Global markets ended lower after taking signals from the selloff that hit U.S. markets on Wednesday. The Stoxx Europe 600 fell 1.3%. Japan’s Nikkei 225 lost 2.9% and China’s Shanghai Composite Index fell 0.3%.

Protests first triggered by rising fuel prices in Kazakhstan have turned violent, prompting a Russian-led military coalition to send troops to the oil-rich country. Video shows government buildings and streets in several cities being stormed by demonstrators. Photo: Mariya Gordeyeva/Reuters

Write to Joe Wallace at [email protected] and Caitlin McCabe at [email protected]

Corrections & Amplifications
Facebook parent Meta Platforms was misspelled as Meta Platorms in an earlier version of this article. (Corrected on Jan. 6)

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Source: WSJ

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