U.S. stocks swung between gains and losses Thursday as investors tried to assess what kind of impact the Federal Reserve would have on markets if it raises interest rates faster than once anticipated.
Major U.S. indexes wavered in recent trading. The S&P 500 added 0.3%, while the technology-heavy Nasdaq Composite ticked up 0.4%. The Dow Jones Industrial Average was about flat.
Markets have kicked off 2022 with choppy trading this week. Volatility accelerated Wednesday after minutes of the Fed’s most recent meeting showed officials eyeing a faster timetable for raising rates. That sent the Nasdaq falling, with the index posting its biggest daily loss since February.
U.S. indexes on Thursday seemed poised at times for a rebound. But whipsawed trading made it difficult for rallies to gain traction for long.
Treasury yields rose for a fourth consecutive day, reflecting investors’ conviction that the fast-spreading Omicron variant won’t stop the Fed tightening monetary policy to tame inflation. The yield on 10-year Treasury notes at one point rose to 1.751%, which would be its highest closing level since January 2020, before slipping back to 1.738%.
Choppiness plagued technology stocks. Tesla lost 1.5%, paring steeper losses earlier in the session. Netflix dropped 2.1%. Apple and Amazon.com both slid more than 0.2%. Facebook parent Meta Platorms jumped 4.2%.
Fund manager Cathie Wood’s flagship ARK Innovation exchange-traded fund added 0.7%, also reversing earlier declines. Meme stocks ticked up slightly after falling earlier in the session.
Cryptocurrencies skidded, in a sign investors are cutting positions in more speculative markets. Bitcoin fell 1.5% to about $42,995 Thursday, according to CoinDesk, compared with its value at 5 p.m. Wednesday.
Global markets traded lower. The Stoxx Europe 600 fell 1.3%. Japan’s Nikkei 225 lost 2.9% and China’s Shanghai Composite Index fell 0.3%.
Investors are bracing for the possibility of a volatile spell for tech stocks, which have powered the market higher since the early-pandemic slump in 2020. Shares of companies such as Apple and Microsoft have benefited from low interest rates on top of blockbuster earnings helped by the shift to home working.
Rates, however, look set to increase, potentially as soon as March. Although investors say stocks can continue to rise in a period of rising rates that reflect a growing economy, tech shares and momentum stocks such as Tesla are seen as vulnerable.
“We could be in for a rough ride,” said Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management. Mr. Andersen expects the volatility to last at least until tech companies begin to report earnings later this month, which he said could encourage investors to buy those stocks back.
Mr. Andersen sees the selloff as a buying opportunity but intends to target the broad market and European banks that stand to benefit when rates rise, rather than U.S. tech.
On the economic front, Labor Department data showed there were 207,000 initial jobless claims, a proxy for layoffs, last week. A tightening labor market is one factor behind the Fed’s pivot toward raising rates sooner than the central bank had previously signaled.
The catalyst for Wednesday’s selloff was the publication of minutes from the Fed’s December policy meeting. They showed officials believed rising inflation and a tight labor market could call for lifting short-term rates “sooner or at a faster pace than participants had earlier anticipated.”
Some officials also thought the Fed should start shrinking its $8.76 trillion portfolio of bonds and other assets relatively soon after beginning to raise rates, the minutes said. Investors pushed yields on government bonds higher. In turn, that hurt tech stocks whose future cash flows are worth less in today’s terms when a higher discount rate is applied.
Traders in interest-rate futures are pricing in a 71% chance that the Fed will raise its short-term target rate from its range of 0% to 0.25% by the end of its March meeting. That is up from about 32% a month ago, shortly after Omicron emerged, according to CME Group data.
Commodity markets were mixed Thursday. Brent-crude futures, the benchmark in energy markets, rose 1.5% to $82.01 a barrel after violence erupted in Kazakhstan, a major oil producer. Precious metals, which typically fall when interest rates rise, lost ground, with silver dropping more than 4% to $22.07 a troy ounce.
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