US stocks fall as traders consider the direction of central bank policy

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Wall Street stocks fell on Monday after a period of choppy trading as uncertainty about central banks’ next move spread from global equities and US Treasuries to euro-zone government bond markets.

The S&P 500 fell 0.2 percent, while the tech-heavy Nasdaq Composite shed about 0.4 percent after rising in early trade. Both stock indicators remain significantly lower year to date in response to the Federal Reserve signaling the end of pandemic-era monetary support last month.

Stocks in Italy — widely viewed as one of the most vulnerable countries in the euro area to rising interest rates — fell 1 percent, underperforming the broader Stoxx Europe 600, which rose 0.7 percent.

Italian government bonds, along with those of Spain and Greece, came under selling pressure in response to bets that the European Central Bank would soon follow the Fed and Bank of England to end a regime of ultra-low interest rates and huge debt purchases that have been lending since 2020 , spending and stock valuations.

“The main driver of markets right now is interest rates,” said Samy Chaar, chief economist at Lombard Odier. “Now even the ECB has turned slightly hawkish,” he added. “Markets are lost.”

Selling calmed down later in the day after ECB President Christine Lagarde addressed the European Parliament.

Investors are grappling with a conflict between improving economic trends and the potential impact of higher interest rates on borrowing costs and company valuations. The technology sector has been particularly volatile, with valuations rising amid nearly two years of extremely low borrowing costs and coronavirus lockdowns that have boosted working from home.

Peloton’s shares rose 14 percent on Monday after it was revealed that Amazon and Nike were evaluating offers for the at-home fitness group.

The Nasdaq is down 10 percent so far in 2022, while the S&P, which is broader but still dominated by big tech stocks, is down more than 5 percent.

Disappointing earnings from Meta last week led the Facebook owner to its biggest one-day drop in a company’s market cap on record. Amazon posted its best daily gain since 2015 on Friday.

US jobs data on Friday showed employers in the world’s largest economy added a better-than-expected 467,000 jobs last month, signaling the resilience of the recovery from the coronavirus-related shocks of 2020. However, inflation data later in the week is expected to show consumer prices rose 7.3 percent in the year to January – a new four-decade high.

“A record amount of stimulus is about to be withdrawn from the global economy,” said Andrew Sheets, strategist at Morgan Stanley, noting that major central banks are expected to shrink their balance sheets by $2 trillion in the 12 months beginning in May this year . “For investors, the magnitude of what lies ahead means we think they should keep overall exposure low.”

Markets last week priced in more than five quarter-point rate hikes by the Fed this year.

The benchmark 10-year Treasury bond yield, which moves inversely with its price, traded at about 1.92 percent.

Brent crude, the global oil benchmark, fell 0.6 percent to $92.68 a barrel, the highest since 2014.

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