Traders Fret About Inflation in Countdown to Fed: Markets Wrap

(Bloomberg) -- As the Federal Reserve gets ready to wrap up its final meeting of the year, another report showing inflation running hot sank some of the most-expensive pockets of the stock market.

Revered by investors during the pandemic for their solid balance-sheets, technology giants dragged down equities on Tuesday. Sentiment soured on concern that a jump in both producer and consumer prices will put pressure on the Fed to act more aggressively. While officials have given no signals they would rush to tighten policy, a hasty shift is seen as the biggest downside risk for stocks in 2022, according to an informal Bloomberg News survey of fund managers.

The S&P 500 dropped for a second day, with financial companies posting the only gain among 11 major industries. Treasury two-year yields topped 0.65%, while the U.S. dollar rose. Oil and gold retreated.

Comments:

• “Anytime there’s a risk of easy money being taken away, that will result in some of these very expensive areas of the market to pull back,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors.
• “The pressure on the Fed to pick up the pace of tightening is only mounting. With higher prices permeating the marketplace, we could see a snowball effect when it comes to inflation challenges as more suppliers justify higher prices and more consumers begin to close their wallets,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial.
• “The inflation trajectory remains worrisome. While we believe that price pressures will abate next year, the Fed is doing the prudent thing by tapering faster, so that it is well-positioned to hike rates if needed,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.

Read: N.Y. Feels Covid’s Grip Tighten Anew as Hospital Cases Surge 70%

A Goldman Sachs Group Inc. basket of the 50 most-shorted stocks has plummeted back into a bear market for the first time since June, ringing up gains for traders who sell shares they’d borrowed in hopes of buying them back at lower prices. The renewed selloff in the more speculative corners of the market adds more evidence of a waning appetite to take risks as a new variant of the coronavirus spreads and the Fed zeroes in on fighting inflation.

Read: Fund Managers’ Rush to Cash Triggers BofA’s Stock-Buying Alert

Corporate highlights:

• Elon Musk made more headway toward his pledge to sell 10% of his Tesla Inc. stake, and it may have cost the carmaker its $1 trillion valuation.
• Boeing Co. received 109 gross orders for 737 Max airliners last month, bringing its sales tally for the narrow-body jets to 692 this year, according to the planemaker’s website.
• 3M Co. agreed to separate its food-safety business and join it with Neogen Corp. in a deal that would value the combined company at about $9.3 billion.

Read: Musk, Bezos Lead the Charge of U.S. Billionaires Selling Shares

Here are some key events this week:

• China releases November industrial output, retail sales data, Wednesday.
• Fed rate decision, Wednesday.
• U.S. business inventories, retail sales, empire manufacturing, Wednesday.
• BOE rate decision, Thursday.
• ECB rate decision, Thursday.
• U.S. housing starts, initial jobless claims, industrial production, Thursday.
• BOJ monetary policy decision, Friday.
• S&P Dow Jones Indices quarterly rebalance effective after markets close, Friday.
• “Quadruple witching” day in the U.S. market, when options and futures on indexes and equities expire, Friday.

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.7% as of 4 p.m. New York time
• The Nasdaq 100 fell 1%
• The Dow Jones Industrial Average fell 0.3%
• The MSCI World index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.2% to $1.1256
• The British pound was little changed at $1.3227
• The Japanese yen fell 0.2% to 113.74 per dollar

Bonds

• The yield on 10-year Treasuries advanced two basis points to 1.44%
• Germany’s 10-year yield advanced one basis point to -0.37%
• Britain’s 10-year yield advanced three basis points to 0.72%

Commodities

• West Texas Intermediate crude fell 1.3% to $70.36 a barrel
• Gold futures fell 0.9% to $1,771.80 an ounce

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