- US stocks reversed lower on Monday as traders weighed the escalation of sanctions and the Fed’s aggressive line speaking.
- The S&P 500 last fell 0.8%, the Nasdaq 100 lost almost 2.0% as US yields hit new multi-year highs.
US stocks They reversed lower on Monday, initially weighed down by the prospect of tougher US and EU sanctions against Russia, but then the losses were exacerbated shortly after the US market opened following aggressive comments from Fed Vice President Lael Brainard. Brainard said the Fed would start shrinking its balance sheet at a “rapid” pace starting in May, meaning the Fed could actively sell bonds, rather than simply letting them roll off the balance sheet.
Therefore, traders have been increasing their bets that the Federal Reserve tightens monetary policy conditions more aggressively and this sent yields across the US curve tumbling to multi-year highs. years, dealing a heavy blow to stock market valuations. The S&P 500 last traded around 0.8%, more than reversing Monday’s gains to fall back below 4,550. The bears will be watching for a test of last week’s lows just above 4,500.
The performance-sensitive, stock-heavy Nasdaq 100 technology/growth index fell closer to 2.0% and in doing so has also given back all of Monday’s gains that saw the index close roughly at its moving average of 200 days at 15,150. The Nasdaq 100’s continued struggle to push and hold above its 200 DMA does not bode well for the bulls. In an environment where the Fed appears poised to accelerate its monetary tightening schedule quite aggressively, and where yields are trading with a bullish bias as a result, this shouldn’t be too surprising.
The Dow Jones Industrial Average, which is much more skewed toward value and cyclical stocks that maintain a positive (or less negative) correlation with returns, was last trading down a more modest 0.5%. Still, as is the case with the Nasdaq 100, the index also continues to struggle to break/hold above its 200 DMA, which currently sits roughly at 35,000. The index was last trading near 34,750.
A strong release of the ISM services PMI survey for March did little to improve the mood of equity markets, which are probably more inclined to take the good news (regarding the economy) as bad news given the stance Fed aggressive. In fact, Brainard mentioned on Tuesday that he is watching for signs of an economic slowdown, so signs to the contrary would likely encourage the Fed to tighten up.
Looking ahead, geopolitics will of course remain a key theme for the rest of the week, but traders should also keep an eye on Wednesday’s Fed meeting minutes. Given the way things have been going recently, few would be surprised to see US yields and the US dollar rally with another aggressive surprise. That means that for the Nasdaq 100 and the Dow, breaking above the 200 DMA may still be a challenge.
Source: Fx Street
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