Stocks End At Low Points On Fed Disappointment
4:10 pm Friday, June 18th, 2021
Stocks slid sharply Friday as investors grappled with news that the Federal Reserve plans to back away from record-low interest rates sooner than projected, easing off its emergency measures while the economy recovers from the massive shocks of the coronavirus pandemic.
Prior to the open, St. Louis Fed President Bullard (FOMC voter in 2022) told CNBC that he expects a rate hike next year in order to contain inflationary pressures and that the Fed shouldn’t be involved in mortgage-backed securities. Mr. Bullard was often seen as one of the more dovish Fed members.
The market is interpreting Mr. Bullard’s comments in several ways: 1) there is a possibility, as indicated in the FOMC’s dot plot on Wednesday, that the Fed could tighten policy sooner than expected, 2) the Fed will try to ensure that inflation pressures are indeed transitory, and 3) there should be a shift in viewing the Fed’s policy stance as dovish, versus ultra-dovish.
The S&P 500 financials sector (-2.2%) is getting undercut by this noticeable curve-flattening activity, leading all sectors in losses with a 2% decline. The information technology (-0.5%) and real estate (-0.4%) sectors are down modestly.
More generally, selling interest has been concentrated in the value/cyclical stocks, as investors continue to take profits in the space given that the reflation narrative is losing its luster. The iShares S&P 500 Value ETF (IVE 144.25, -2.09, -1.4%) is down 1.4%, extending its weekly decline to 3.7%.
In the technology space, NVIDIA (NVDA) had its price target raised to a Street-high $900 from $800 at BofA Securities, Adobe (ADBE) provided better-than-expected earnings results and upbeat guidance, and PayPal (PYPL) will reportedly raise its U.S. fees.
U.S. Treasuries ended the week on a mixed note with the 30-yr yield falling to its lowest levels since mid-February while relative weakness in shorter tenors lifted the 2-yr yield to a 14-month high. The Treasury complex started the day in the green but the 5-yr note and shorter tenors were quick to slide from their opening levels while longer tenors advanced, making for a continuation of yesterday’s dynamic.
