ASX futures fell 113 points or 1.6% to 7213 at 8:00 am on Friday, indicating a weak start to trading.
The Nasdaq Composite Index also lost 5%, with sharp declines for both Tesla and Amazon.com. The S&P fell 3.6% as 95% of companies sank. The Dow fell 3.1 percent, giving back Wednesday’s gains. The broad indexes fell between 7.02 and 9.38 percentage points from Wednesday’s peaks to Thursday’s troughs, per Dow Jones Market Data, their biggest swings since the first half of 2020.
Investors shunned markets a day after stocks rallied earlier on US Federal Reserve Chairman Jerome Powell downplaying the prospect of another supersized 0.75% rate hike at a future meeting. Markets had been gearing up for that sort of move at the Fed’s June meeting, and jumped after Powell pushed back against the hawkish move.
The cheerleading behind that rally was all but gone Thursday, when selling was widespread, but most acute in the technology stocks that have fallen on hard times in 2022 after years of leading the market advance.
“The market yesterday was a relief rally,” said Seema Shah, a chief strategist at Principal Global Investors. By Thursday, she said, the recognition of a more arduous landscape for stocks was beginning to sink in, including higher rates, tough earnings comparisons and a stronger US dollar that burdens overseas earnings at multinational companies.
Locally, the S&P/ASX 200 ended 0.8% higher at 7364.7, breaking a three-day losing streak amid widespread gains.
Ten of 11 sectors advanced as the benchmark trailed a strong performance from US stocks, which surged for their biggest one-day gain since 2020.
The heavyweight financial sector in Australia ended flat. Local gains were led by tech stocks, with Computershare, WiseTech and Xero rising by 2.4% to 3.4%.
Shares of real-estate investment trusts rebounded after plunging sharply in the prior two days, when rising interest rates had pressured them lower on fears they were in default on loans.
QBE gained 5.5% to a two-month peak of $12.68 after the insurance giant reported gross written premium rose 19% in the first three months of the year, from a year earlier.
Commodity stocks made a strong showing, with lithium miners Liontown and Pilbara Minerals the best performers among ASX 200 constituents.
In commodities, gold futures rose 0.4% to $US 1875.70 a barrel; Brent crude oil gained 0.8% to $US111.06 a barrel, and iron ore soared 2% to US$145.80 a tonne.
Australian bonds surged sharply in tandem with equities. AUD government bond yields fell with the 2 Year at 2.69% and 10 Year at 3.38%. Overseas, US fresh selloff continued their details and US Treasury 2 Years again went up to 2.70%, while 10 Year jumped up to 3.04%.
The Australian dollar gave back some of yesterday’s gains and bought 71.09 US cents at 7:00 am AEST, from its previous close of 72.58. The Wall Street Journal Dollar Index, which measures the US dollar against 16 others, soared to 95.88.
Asia
Chinese stocks finished the session mixed as the market reopened after a week-long holiday. The benchmark Shanghai Composite Index gained 0.7% to close at 3067.76, and the Shenzhen Composite Index also added 0.7% to 1891.66. The tech-heavy ChiNext Price Index was the sole loser with a 1.3% drop to 2288.40. Most of that coming from home-appliance makers that surged following strong 1Q earnings from a handful of big-name companies. But gains for EV-battery makers were offset, as concerns over rising margins sent shares of CATL tumbling 8.1%.
Hong Kong stocks closed lower, tracking broad weakness across regional equities markets. The benchmark Hang Seng Index put on 0.4% to 20793.40. The slump hit a broad range of sectors. Biotech company Wuxi Biologics tumbled 5.4%, real estate management company Country Garden Services fell 3.8% and electronics manufacturer Sunny Optical was down 3.3%. China’s tech giants fell further, but by smaller amounts. NetEase fell 1.7% and Tencent was down 0.5%.
Japanese share markets were shut for a public holiday.
Europe
European stocks finished mostly lower, surrendering early gains, as US stocks gave up a rally from the last session after the Federal Reserve’s latest policy decision.
The pan-European Stoxx 600 slid 0.7%, the German DAX dropped 0.5%, and the French CAC 40 fell 0.4%. The Fed raised rates yesterday as anticipated, but tempered expectations for more aggressive tightening, helping US stocks.
But a weak start to US trading today is now starting to act as a drag on European stocks, according to CMC Markets analyst Michael Hewson in a note.
London’s FTSE 100 added 0.1%, as the pound slid when the Bank of England raised interest rates Thursday but also had a bleaker outlook for the economy.
North America
The stock market executed its biggest about-face since the early days of the pandemic on Thursday, with the Dow Jones Industrial Average suffering its worst drop this year just 24 hours after its largest gain since 2020.
The turnaround erased the euphoria that lifted Wall Street Wednesday after Federal Reserve Chairman Jerome Powell said on Wednesday that the Fed did not seem “actively considering” a 0.75 percentage point increase in interest rates at a future meeting. With inflation at its highest level since the early 1980s, markets had expected such an increase and the prospect of a slower rise in rates sent investors into a furious buying frenzy in the late afternoon.
The optimism that propelled that rally had long since vanished by Thursday, as selling was broad-based but mostly concentrated in the technology shares that hit hard times in 2022 after having led the advance for so many years.
Tesla declined 8.3 percent and Amazon.com fell 7.6%. Bank stocks, an important measure of economic hopes, fell 2.7 percent, by the KBW Nasdaq index of major commercial lenders. The Russell 2000 index of smaller US companies sank 4%.
“The market yesterday was a relief rally,” said Seema Shah, chief strategist at Principal Global Investors. By Thursday, she added, the makings of a tougher environment for stocks were finally sinking in, from higher rates to tougher earnings comparisons to a stronger US dollar that puts pressure on overseas profits at multinational companies.
Thursday’s rout is the latest episode of the volatility that has marked markets this year, and underscores the nervousness over the expected effects of the Fed’s rate-increase campaign that seeks to unwind years of easy policy.
That discomfort is reinforcing a propensity among many investors to sell some shares during market rallies, as they try to rebalance portfolios that could have become too skewed toward firms that benefited from pandemic-related stimulus.
The Nasdaq Composite Index dropped 647.16 points, or 5%, to 12317.69, its biggest one-day percentage loss since June 2020. The S&P fell 153.30 points, or 3.6 percent, to 4146.87, and the Dow lost 1,063.09 points, or 3.1 percent, to 32997.97, wiping out the gains of Wednesday. The broad indexes fell between 7.02 and 9.38 percentage points from their highs Wednesday to their lows on Thursday, Dow Jones Market Data shows, their biggest shifts since the first half of 2020.
In the bond market, the yield on the benchmark 10-year Treasury note increased to 3.066 percent, the highest yield since November 2018. When yields increase, bond prices decline.
The drop followed a day in which major US stock indexes shot up, the Dow gaining over 900 points, its biggest one-day jump since 2020. Federal Reserve officials on Wednesday blessed a half-percentage-point increase in interest rates, raising the federal-funds rate to a new target range between 0.75% and 1%.
“The Fed is tightening up liquidity in the markets and that’s creating volatility, and so this could be our new normal here for a while until the Fed gets inflation in check and changes the policy,” said John Ingram, chief investment officer and partner at Crestwood Advisors.
And even with a larger interest-rate hike no longer on the table in the coming months, investors are still confronting the most aggressive tightening of US monetary policy since 2000, when the central bank last raised rates by half a percentage point. While many investors describe the market setup at the time as radically different from the present — high valuations then and many of the highest-flying dot-com companies having little in the way of business prospects long term the fact that year ended with steep declines for the major indexes isn’t lost on them.
Now many investors are wondering how high the Fed might raise rates over the next couple of years in the face of soaring inflation and how that could affect the economy and corporate profits.
“This is like when we all take drugs, it’s got to build up in your system and these fed-fund rises always have a lag time,” said Tim Horan, co-chief investment officer of fixed income at Chilton Trust.
Those jitters were evident across the market on Thursday. Growth stocks were especially battered. Chip makers Advanced Micro Devices, Nvidia and NXP Semiconductors all fell by at least 4%. Mega Cap technology stocks also retreated, with Meta Platforms slumping 6.8%, Netflix dropping 7.7%, and Apple taking a 5.6% tumble.
Higher interest rates dilute the appeal of technology stocks because they lower the value investors ascribe to future earnings. Higher yields also increase the appeal of fixed income products compared with riskier assets like stocks.
Many of the pandemic darlings among stocks also dropped back. Etsy fell 17% after the online marketplace issued guidance that missed estimates for the current quarter. eBay declined 12% after it lowered guidance on the impact from the war in Ukraine.
Wayfair shares also fell, dropping 26 percent after the online home goods retailer reported a loss for the latest quarter that was worse than expected. Shopify’s first-quarter earnings fell short of analysts’ expectations, causing the stock to drop 15%.
