(Bloomberg) — Treasury yields climbed to more than one-year highs and growth stocks favored under the so-called reflation trade fell amid concern Federal Reserve officials could revise forecasts for when they see a liftoff from near-zero rates.
The tech-heavy Nasdaq 100 edged lower for the first time in three trading sessions as U.S. central bankers meet for a second day. The S&P 500 also declined, while the Dow Jones Industrial Average was little changed. Fuel-cell firm Plug Power Inc. tumbled after it disclosed accounting errors.
“The interest rate game continues to be the key catalyst among movement within the U.S. equity market. The 10-year Treasury yield rises, the Nasdaq 100 falls and partially drags the S&P 500 with it,”said Michael O’Rourke, chief market strategist at JonesTrading. “The Federal Reserve certainly does not need to react to every signal the market provides. The market just wants the chairman to indicate that he is not blind to it.”
Expectations of a strong recovery from the Covid-19 slump are putting an intense focus on Fed officials’ projections for interest rates displayed in their “dot plot.” Two-thirds of economists surveyed by Bloomberg expect policy makers to continue to signal no liftoff from near-zero rates through 2023, though more of the 18 central bankers could drift their dots higher.
The yield on 30-year Treasuries spiked to a level unseen since 2019 and the 10-year hit 1.67%. Market-implied inflation expectations are at 12-year highs. The dollar strengthened versus most major peers.
Rates markets are positioned for the Fed to raise borrowing costs sooner than current guidance suggests. Higher inflation expectations have boosted bond yields and sparked a rotation from growth to value stocks. Bond investor Bill Gross predicted in a Bloomberg TV interview that inflation will rise to 3% to 4% in the coming months.
“The concern is the assets that have worked best over the last decade — rates, credit of all kinds and long-duration equities — may not be the only games in town any more,” said David Wong, investment strategist at AllianceBernstein.
Elsewhere, the Stoxx Europe 600 Index fell, and South Korean stocks retreated as Samsung Electronics Co. warned it’s grappling with the fallout from a “serious imbalance” in semiconductors globally.
WTI crude oil reversed a gain after the International Energy Agency said markets aren’t on the verge of a new price supercycle. Bitcoin held at about $55,000, below the weekend record above $61,000.
These are some key events this week:
Fed Chair Jerome Powell will likely reaffirm his steady policy stance at the Fed policy meeting Wednesday.Bank of England rate decision Thursday. BOE is expected to leave monetary policy unchanged.Bank of Japan monetary policy decision and Governor Haruhiko Kuroda briefing Friday.
These are the main moves in markets:
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