U.S. stock benchmarks fell as investors digested the European Central Bank’s plan to begin increasing interest rates next month.
The S&P 500 fell 0.6% Thursday and the Dow Jones Industrial Average slipped 0.5%. The technology-focused Nasdaq Composite Index fell 0.7%. The major indexes opened lower before briefly turning positive in early trading.
For much of this year, investors have been positioning their portfolios to account for the end of easy-money conditions in the U.S. But now, traders must account for tighter policy in the eurozone as well.
The ECB said Thursday it would increase its key interest rate from minus 0.5% to zero or higher by September, and probably further after that. The central bank indicated that it plans to start with a quarter-percentage point increase in July. It also said it would end its large-scale bond-buying program on July 1.
In both the U.S. and Europe, the announcement sent stocks falling. The pan-continental Stoxx Europe 600 lost 1.4%. The euro fell 0.7% against the dollar, reversing earlier gains. Government bonds slid, sending yields higher.
The moves by central banks in the U.S. and Europe come as inflation around the world continues to weigh on households. On Friday, investors will get a fresh picture of inflation in the U.S. when consumer-price index data for May are released. Economists surveyed by The Wall Street Journal expect the reading to show that inflation in the U.S. held steady at 8.3% in May, the same annual rate notched for April.
Traders and strategists say the inflation data could heavily influence the next stretch of trading for markets, and help shape the Federal Reserve’s interest-rate decisions for later this year. The Fed’s June meeting will occur next week, and the central bank is widely expected to raise its key interest rate by a half-percentage point—a move it is expected to replicate in July.
“The concern here in the U.S. is the Fed tightening into an economy that is already showing signs of a slowdown,” said
chief investment officer at BNY Mellon Wealth Management. “The ECB is tightening into an even more pronounced slowdown; that could impact global growth, which in turn could be another headwind for company earnings.”
Much of the debate in markets has shifted to what the Fed might do at its meeting in September. Until a more clear picture emerges, some traders have been unwilling to make big bets in the market, investors and strategists say.
Some strategists say that has led to more choppy trading in recent sessions as they try to determine whether this year’s market selloff has bottomed, or if more pain could be ahead. Many are also factoring in the possibility of an eventual U.S. recession.
“People are not having any conviction one way or another and are taking chips off the table,” said
global macro strategist at Vanda Research. “They are not wanting to get caught offside in either direction.”
The S&P’s energy and materials sectors fell 1.3% and 1.2%, respectively, leading the index’s declines. The broad index’s consumer staples sector was the only positive sector on Thursday afternoon, up 0.03%.
“People need deodorant, paper towels and cereal even when they might have to cut spending,” said Ryan Belanger, managing principal at Claro Advisors, a Boston-based wealth-management firm.
In trading in New York, shares of
added 1.8%, down from earlier highs, after
upgraded the stock to buy from neutral. A U.S. auto regulator said it was expanding a probe into crashes of Tesla vehicles and first-responder vehicles at emergency scenes. The electric-vehicle maker is still on pace to extend its rally into a fourth day.
Tesla shares have been battered this year, falling 31% through Wednesday, as investors dumped shares of growth companies. The stock has also been affected by Chief Executive
plan to purchase
fell 4.7 % after the discount retailer reported a decline in first-quarter profits as operating costs climbed.
In the Treasury market, the yield on the benchmark 10-year Treasury advanced to 3.049%, from 3.028% Wednesday. Yields and bond prices move inversely.
In energy markets, Brent crude, the international benchmark for oil prices, edged higher 0.3% to $123.19 a barrel. Oil prices have moved higher recently amid China’s emergence from Covid-19 lockdowns and as traders continue to assess potential supply disruptions due to the war in Ukraine.
In Asia, China’s Shanghai Composite lost 0.8%, despite data showing that the country’s exports rebounded strongly in May. Hong Kong’s Hang Seng lost 0.7%, while Japan’s Nikkei 225 ended roughly flat.
Write to Caitlin McCabe at [email protected]
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