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Stocks sold off sharply Tuesday after comments from Federal Reserve Chair Jerome Powell suggested that rates may need to go higher for longer, fueling fears of a potentially larger hike at the central bank’s next policy meeting.
The comments indicated that the Fed may consider a larger rate hike than last month’s 25 basis point increase at its next policy meeting on March 21-22.
Powell’s comments raise the stakes for February’s jobs report out Friday morning, which could show a resilient labour market that allows the Fed to keep hiking.
The Dow Jones Industrial Average shed 575 points, or about 1.7 per cent, while the S&P 500 lost 1.5 per cent. The Nasdaq Composite dropped 1.3 per cent.
As the major stock indexes fell, the 2-year Treasury yield jumped to its highest level since 2007 at 5 per cent.
Bank shares led the losses as investors feared more rate hikes will tip the economy into a recession. Wells Fargo lost more than 4 per cent. Bank of America, Goldman Sachs and JPMorgan Chase lost more than 2 per cent each. Mega cap tech stocks also tumbled, with Apple, Alphabet and Microsoft last down at least 1 per cent each.
Meta has announced its planning another round of layoffs that could affect thousands of workers as soon as this week.The job cuts come after the company laid off 13 per cent of its workforce in November as part of a major cost-cutting plan. CEO Mark Zuckerberg previously told investors that 2023 would be the “year of efficiency” for the company.
Elon Musk, the owner of Twitter, said at a Morgan Stanley conference that the company may break even on a cash-flow basis in Q2 and has a chance to turn a profit. Twitter has been working on making its advertising more relevant, according to Musk. He also highlighted the high debt burden of the company, which is about $1.5 billion annually, equivalent to its current cash burn rate. Despite the attention Twitter receives, it currently generates very little revenue, making the opportunity to improve profitability “startling,” according to Musk.
An area of strength for markets continues to be small caps – Paul Hickey, co-founder of Bespoke Investment Group, said the strength of the small-cap stocks is a sign of market resilience despite the uncertainty of the Federal Reserve’s tightening path. The Russell 2000 index is up nearly 8 per cent this year, outperforming the S&P 500′s 5.4 per cent gain.
In commodity news, according to Darton Commodities, the cobalt market experienced its largest-ever supply surge in 2022, primarily due to increased production of the battery metal in the Democratic Republic of Congo and Indonesia. Mined cobalt supply increased by 23 per cent which eliminated the large deficit observed in 2021 and resulted in one of the largest surpluses in the market at year-end. The cobalt metal has previously caused difficulties for car manufacturers during periods of under-supply and raised concerns about hazardous working conditions in the DRC’s informal mining sector.
Overnight, all S&P 500 sectors closed lower. Consumer staples was the best performer, whilst Financials and Real estate suffered severe losses.
Futures
The SPI futures are pointing to a 0.8 per cent fall.
Currency
One Australian dollar at 8:10 AM has weakened compared to the US dollar yesterday buying 65.91 US cents (Tue: 67.28 US cents).
Commodities
Iron ore futures are pointing to a 0.7 per cent gain.
Gold fell 1.9 per cent. Silver dropped 4.6 per cent. Copper lost 2.9 per cent and oil was down 3.8 per cent.
Figures around the globe
Across the Atlantic, European markets closed lower. London’s FTSE fell 0.1 per cent, Frankfurt lost 0.6 per cent while Paris closed 0.5 per cent lower.
In Asian markets, Tokyo’s Nikkei added 0.3 per cent, Hong Kong’s Hang Seng fell 0.3 per cent while China’s Shanghai Composite closed 1.1 per cent lower.
Yesterday, the Australian sharemarket closed 0.5 per cent higher at 7364.65
Ex-dividends
AVJennings (ASX:AVJ) is paying 1.1 cents fully franked
Blackmores (ASX:BKL) is paying 87 cents fully franked
Brambles (ASX:BXB) is paying 17.67 cents 35 per cent franked
Costa Group Holdings (ASX:CGC) is paying 5 cents 40 per cent franked
EQT Holdings (ASX:EQT) is paying 49 cents fully franked
EVT (ASX:EVT) is paying 14 cents fully franked
Kip McGrath Education Centres (ASX:KME) is paying 1 cent unfranked
Monash IVF Group (ASX:MVF) is paying 2.2 cents fully franked
Pacific Group (ASX:PAC) is paying 29 cents fully franked
Smartgroup Corporation (ASX:SIQ) is paying 15 cents fully franked
Super Retail Group (ASX:SUL) is paying 34 cents fully franked
Terracom (ASX:TER) is paying 7.5 cents fully franked
Veem (ASX:VEE) is paying 0.4 cents unfranked
Woodside Energy (ASX:WDS) is paying 211.3296 cents fully franked
Dividends payable
Lendlease Group (ASX:LLC)
Magellan Financial Group (ASX:MFG)
Reef Casino Trust (ASX:RCT)
Zimplats Holdings (ASX:ZIM)
Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
