(Bloomberg) — Stocks and bonds sold off after Federal Reserve Chairman Jerome Powell underwhelmed markets by refraining from pushing back more forcefully against the recent spike in Treasury yields.
The S&P 500 erased its gains for 2021, while benchmark 10-year bond rates topped 1.5% as Powell said he’d be “concerned” by disorderly markets, but stopped short of offering specific steps to curb heightened volatility. The tech-heavy Nasdaq 100 extended its losses from a February peak to 10%, and the Russell 2000 of small caps tumbled more than 4%. The dollar climbed.
The recent spike in Treasury yields has roiled global markets amid concern that bets on stronger economic growth could fuel an increase in consumer prices. For Peter Boockvar, chief investment officer at Bleakley Advisory Group, the Fed has put itself in a “tough situation,” and the only way out is if inflation doesn’t rise any further, remaining below the 2% target.
“We are again seeing a market that is taking control of monetary policy from the Fed,” Boockvar said. “Long rates are rising right now because Powell is again very dovish. The more dovish they get in the face of market expectations of higher inflation, the more financial tightening we’ll see.”
Read: Powell Says ‘Disorderly’ Market Conditions Would Concern Him
Despite the lingering uncertainties about the impacts of rising bond yields, such fears are “misplaced,” according to Candice Bangsund, portfolio manager of global asset allocation at Fiera Capital.
“As long as the back-up in bond yields reflects stronger growth expectations (versus tighter monetary policy), then the long-term bull market will not be at risk,” she said. “The latest normalization in bond yields should be viewed as an encouraging sign that growth is healing, while the prospect for a hawkish turn from the Federal Reserve is clearly not in the cards today.”
Some key events to watch this week:
The February U.S. employment report on Friday will provide an update on the speed and direction of the nation’s labor market recovery.
These are some of the mains moves in markets:
Stocks
The S&P 500 fell 2.4% at 2 p.m. New York time.The Stoxx Europe 600 Index fell 0.4%.The MSCI Asia Pacific Index dipped 2.6%.The MSCI Emerging Market Index declined 2.8%.
Currencies
The Bloomberg Dollar Spot Index climbed 0.7%.The euro decreased 0.8% to $1.1969.The Japanese yen depreciated 0.8% to 107.89 per dollar.
Bonds
The yield on 10-year Treasuries rose seven basis points to 1.55%.Germany’s 10-year yield fell two basis points to -0.31%.Britain’s 10-year yield decreased five basis points to 0.731%.
Commodities
West Texas Intermediate crude gained 4.2% to $63.83 a barrel.Gold depreciated 1.1% to $1,692.23 an ounce, the weakest in nine months.
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