Wall Street stocks rise as pressure eases on government bonds
Global stock and government bond prices rose on Wednesday as the sovereign debt market rebounded from a selloff earlier in the week that was prompted by concerns over monetary policy tightening.
Yields on government bonds, which fall when prices rise, on both sides of the Atlantic hit multi-year highs this week as the Federal Reserve, Bank of England and European Central Bank all edge closer to the normalization of monetary policy after years of extraordinary stimulus.
However, the selling halted on Wednesday as yields fell in developed markets. The 10-year US Treasury yield fell 0.02 percentage points to 1.95%, while the 10-year German Bund fell 0.05 percentage points to 0.21%.
The yield on Italian 10-year bonds, which is seen as particularly sensitive to rising rates due to high government debt levels, fell 0.1 percentage point to 1.75%.
The good mood was also reflected in equity markets, with major indices in the United States, Europe and Asia posting strong gains.
Wall Street’s benchmark, the S&P 500, rose 1.5% as stocks across all sectors rose. The Nasdaq Composite-dominated tech climbed 2.1%.
The pan-European Stoxx 600 index rose 1.7%. Italian assets once again performed particularly well, with the FTSE MIB rising 2.7%.
Tech stocks are seen as particularly vulnerable to rising bond yields, reducing the valuation investors place on their future earnings. However, with the Nasdaq already down about 7% in 2022, sessions of declining bond yields have prompted bargain hunting in the sector. Shares of Google owner Alphabet rose 1.6%, while Facebook owner Meta – which plunged last week after disappointing results – gained more than 5%.
“When stock market sentiment has been very weak for a while, sometimes it feels like things can’t get any worse,” said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors.
“There was a feeling of looking for the entry point to buy out mega-cap technology,” he said. “Although, as the environment is going to be choppy with rates for some time, I don’t quite agree.”
Money markets have priced in more than five quarter-point rate hikes by the Fed this year in response to soaring inflation. Thursday’s data is expected to show consumer prices in the United States rose 7.2% in the year through January, a four-decade high.
Optimism is setting in as price increases, fueled by global supply chain issues and soaring energy costs, have peaked. However, stock markets have swung wildly in recent weeks as investors struggled to predict where bond yields and interest rates will stabilize.
“Everyone understands that inflation is down, but we don’t know by how much,” said Caroline Simmons, UK chief investment officer at UBS Private Banking. “That’s what pisses people off.”
The S&P 500 is down 4% for 2022 and has moved more than 1% in either direction on a third of trading days this year.
Bets on the European Central Bank’s monetary policy tightening rose last week when its chairwoman Christine Lagarde expressed concern about record eurozone inflation and refused to rule out an interest rate hike. interest. Francois Villeroy de Galhau, governor of the Banque de France, said on Tuesday, however, that markets may have overreacted to Lagarde’s comment.
Brent, the international oil benchmark, rose 0.8% to $91.55 a barrel, remaining near its highest level since October 2014.
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