Stocks Fall as Investors Study Fed Minutes
2:52 pm Wednesday, April 06th, 2022
Technology stocks declined as bond yields hit their highest level in three years and investors digested more details about the Federal Reserve’s plan to raise interest rates.
The minutes showed that “Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified.”
In addition, “Participants generally agreed that monthly caps of about $60 billion for Treasury securities and about $35 billion for agency MBS would likely be appropriate. Participants also generally agreed that the caps could be phased in over a period of three months or modestly longer if market conditions warrant.”
The broader market is also trading lower, except for pockets of strength in the utilities (+2.0%), consumer staples (+1.1%), energy (+1.1%), real estate (+0.9%), and health care (+0.8%) sectors. The Invesco S&P 500 Equal Weight ETF (RSP 155.64, -1.23) is down 0.8%.
The losses have taken the S&P 500 below its 200-day moving average (4490), inviting increased hedging interest to protect against technical-driven weakness. The CBOE Volatility Index has shot higher by 15.1% to 24.20.
Interest rates have calmed down a bit after reaching fresh multi-year highs overnight. Presently, the 2-yr yield is down three basis points to 2.48% after topping 2.60% overnight while the 10-yr yield is up four basis points to 2.59% after topping 2.65% overnight.
Concerns about the Fed having a hand in causing a recession are well documented. Growth concerns are especially evident in the steep underperformance of the transportation stocks this month. The Dow Jones Transportation Average is down 11.9% in April, including today’s 3.6% decline. For comparison, the S&P 500 is down 1.5% this month.
Staying in the transportation space, JetBlue Airways (JBLU) made a $3.6 billion all-cash offer for Spirit Airlines (SAVE), which had previously agreed to merge with Frontier Group (ULCC).
