New York: The Standard & Poor’s 500 Index approached bear market territory and the dollar rose on Friday as investors worried about the Federal Reserve’s tightening policy to clamp down on inflation raised fears of a recession.
Shares rebounded earlier in Europe and Asia after China cut a key lending benchmark to boost its weak economy, initially helping drive gains on Wall Street.
China cut the key interest rate for five-year loans, which influences mortgage rates, by 15 basis points in a sharper-than-expected drop as authorities seek to mitigate the impact of an economic slowdown.
The S&P 500 fell below 3,837.248, or 20% below its record closing high on January 3, in a drop that would confirm a bear market if the index closed below that level.
How long it takes to cash out in stocks will depend on when inflation collapses, said Peter Toze, chairman of Chase Investments in Charlottesville, Virginia.
Toze said, referring to weak earnings results at Walmart Inc and Target Corp.
The S&P 500 lost 1.80%, the Dow Jones Industrial Average fell 1.49% and the Nasdaq Composite fell 2.54%.
Stephen Outh, chief equity investment officer at Federated Hermes, said stock valuations should go down and the expected return on investments, and the discount rate, should go up.
“The market is starting to get the idea that this could be a new world where the discount rate on risky assets is not zero anymore,” Oth said.
“You see all these different areas of the market being bombarded at the same time and it was very worrying for investors,” he added.
The MSCI index of shares in 47 countries fell 0.82%, on course to record a seventh consecutive weekly decline, its longest losing streak since the index was launched in 1990.
Earlier, the pan-European STOXX 600 index closed up 0.73%.
US Treasury yields fell for the third consecutive session amid concerns about growth prospects. The yield on the benchmark 10-year note fell 7.8 basis points to 2.778%.
Fed fund futures were firmer, indicating that the US interest rate market has slipped slightly from some of the more extreme rate hike estimates. The market rate on the federal funds rate will be 2.783% by the end of next year, compared to the current level of 0.83%. The rate was up 2.9% two weeks ago.
The dollar regained some of its recent losses against the euro but remained on track to post its worst weekly decline against the single currency since early February as investors questioned whether the US currency’s rally was over.
The dollar has received a boost in recent months by escaping to safety amid a rout across markets on fears of rising inflation, Federal Reserve hawks and the war in Ukraine.
The dollar index rose 0.223%, with the euro slipping 0.4% to $1.0544. The Japanese yen strengthened 0.01% to 127.76 per dollar.
Eurozone bond yields rose after two days of sharp declines as risk sentiment improved after China cut interest rates.
The German 10-year government bond yield fell 1.2 basis points to 0.932%, well below last week’s eight-year high of 1.189%.
Markets are pricing in 38 basis points of tightening from the European Central Bank by its July meeting. This indicates that the 25 basis point rise is fully priced in and the market sees a 50/50 probability of an additional 25 basis point move.
Oil prices steadied, on course for a little change this week as a planned European Union ban on Russian oil offset concerns that slowing economic growth will hurt demand.
US crude futures closed $1.02 higher at $113.23, and Brent crude rose 51 cents to settle at $112.55 a barrel.
Gold rallied, heading towards its first week of gains in five on the back of ongoing concerns about economic growth and the dollar’s decline during the week.
Declining Treasury yields supported the safe-haven metal on the day, sending spot gold up 0.1% to $1,843.29 an ounce by 1802 GMT. Prices hit a one-week high earlier in the session.
US gold futures rose 0.1% to $1,842.10.
Bitcoin fell 4.16% to $29.029.40.
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