On Wednesday, Asian equities slumped in cautious trade after Wall Street stocks hit a new low for the year.
Tokyo, Shanghai, Seoul, and Sydney all fell, while Hong Kong rose just a smidgeon.
On Wall Street on Tuesday, technology stocks led the way down. Policymakers are concerned about an increase in coronavirus infections in Asia associated to the spread of omicron. Asian economies have suffered as a result of the pandemic and are still fighting to recover.
“The risk-off mentality in global markets is being carried into Asia’s session today,” said Yeap Jun Rong, market strategist at IG in Singapore. “Market expectations continue to price in a more aggressive Fed tightening ahead, with concerns that economic momentum may be curtailed.”
The Nikkei 225 index in Japan fell 1.8 percent to 27,751.58. The S&P/ASX 200 index in Australia lost 0.4 percent to 7,381.30. The Kospi in South Korea was scarcely altered, falling less than 0.1 percent to 2,864.01. The Hang Seng Index in Hong Kong increased by 0.5 percent to 24,226.08, while the Shanghai Composite Index increased by 0.1 percent to 3,574.37.
The major indices have been losing ground on Wall Street this month as increasing inflation and the pandemic’s current advance have prompted investors to be cautious.
Treasury yields have been climbing due to rising anticipation of a Federal Reserve rate hike. The yield on the 10-year Treasury note reached 1.87 percent on Tuesday, the highest since January 2020. Late Friday, it was at 1.77 percent.
Investors now expect the Federal Reserve to raise short-term rates at its March meeting, with a likelihood of more than 86 percent. According to CME Group, there was less than a 47 percent possibility of that happening a month ago.
The S&P 500 index dropped 1.8 percent to 4,577.11, with nearly 90% of the equities in the benchmark index closing in the red.
The Nasdaq, which is dominated by technology stocks, dropped 2.6 percent to 14,506.90. The Dow Jones Industrial Average dropped 1.5% to 35,368.47 points. Small-company stocks, which are a barometer of economic growth, have also lost momentum. The Russell 2000 index slid 3.1% to 2,096.23 points.
This month, the Nasdaq has taken the brunt of the losses, losing 7.3 percent. This brings the index within 2.7 percent of a correction, which occurs when a stock or index drops 10% or more from its previous high. After hitting an all-time high on the first trading day of the year, the S&P 500 is down about 4% for the month.
According to Ross Mayfield, an investment strategy analyst at Baird, the 10-year yield “simply continues to crawl higher, pricing in a larger and more active Federal Reserve.” “I hadn’t seen any discussion about two rate hikes at the March meeting until over the weekend, and now you’re starting to hear that chatter.”
The Fed is under pressure to lower inflation, which increased at its strongest rate in nearly 40 years last month. At the same time, the labour market has recovered, with the unemployment rate falling to a historic low of 3.9 percent in month. This offers the central bank more freedom in reining in the economy’s unparalleled support since the pandemic began.
Higher rates could help to contain inflation, but they would also signal the end of market conditions that have kept many investors in “easy mode” since early 2020.
Shares in high-flying tech companies and other pricey growth equities become less appealing when interest rates rise. On Tuesday, the sector was the greatest drag on the S&P 500. Apple was down 1.9 percent, and Nvidia, the chipmaker, was down 3.9 percent.
Banks also weighed hard on the market as Goldman Sachs reported a 13 percent drop in fourth-quarter profit from a year ago, owing partly to the big pay packages Goldman is providing its employees. JPMorgan and Wells Fargo reported lower earnings and greater expenses due to increasing employee compensation costs last week, and Goldman’s findings resembled those of JPMorgan and Wells Fargo.
Goldman’s stock fell 7%, while JPMorgan’s fell 4.2 percent. The stock of Wells Fargo was down 2.4 percent.
Returning investors examined the latest round of business earnings and deal news after the United States markets were closed Monday for the Martin Luther King Jr. holiday. On the news of a mega deal, Activision Blizzard’s stock jumped 25.9%. Microsoft, which is down 2.4 percent, is paying $68.7 billion for the producer of games like “Call of Duty” and “Candy Crush.”
On Wednesday, Bank of America, UnitedHealth, and United Airlines will release their earnings. On Thursday, American Airlines, Union Pacific, and Netflix will report their earnings.
On the New York Mercantile Exchange, benchmark U.S. crude rose $1.10 to $85.93 a barrel in electronic trading. On Tuesday, the price of US crude oil rose 1.9 percent to $84.83 a barrel, a seven-year high. Brent crude increased $1.03 to $88.54 per barrel, the worldwide benchmark.
The US dollar sank to 114.58 Japanese yen from 114.61 yen in currency trade. At $1.1327, the euro remained unchanged.