Stocks Sink as Risk Mood Worsens; Dollar Rebounds: Markets Wrap

US stocks slumped for a second day in thin holiday trading and Treasury yields ticked higher, as hopes for a year-end rally faltered.

Stocks Sink as Risk Mood Worsens; Dollar Rebounds: Markets Wrap

US stocks slumped for a second day in thin holiday trading and Treasury yields ticked higher, as hopes for a year-end rally faltered.

The S&P 500 coughed up an early advance, with sentiment worsening on concern that the end of China’s zero-Covid policy could lead to a rise in cases around the world. Trading volumes were about 20% below the 30-day average at this time of day. The 10-year yield pushed to 3.86% and oil slumped. Tech shares remained under pressure in the US, even as Tesla Inc. sought to halt a seven-day rout prompted by concerns about ebbing demand. A gauge of the dollar erased losses.

The still-cautious mood is damping hopes for a rally in the last trading week of 2022 after a brutal year for financial markets. Global equities have lost a fifth of their value, the largest decline since 2008 on an annual basis, and an index of global bonds has slumped 16%. The dollar has surged 7% and the US 10-year yield has jumped to above 3.80% from just 1.5% at the end of 2021 as the Federal Reserve pursued an aggressive path of rate hikes to rein in inflation.

“We think investors have become way too pessimistic given where we are in the rate hiking cycle,” wrote Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments. Following one of the fastest rate-hiking regimes in history, “we expect the economy to slow materially or enter recession at some point in 2023. To be sure a severe recession would be bearish for stocks, yet given the resilience of the U.S. economy and the tight labor market, we are expecting a slowdown or shallow and brief recession. That could allow stocks to rally in the second half of 2023.”