Nasdaq tumbles as rate-rise concerns collide with growth worries

Nasdaq tumbles as rate-rise concerns collide with growth worries

Global stocks were hit with a fresh jolt of selling on Monday as investors fretted about signs of slowdowns in the world’s large economies at a time when central banks are reining in crisis-era stimulus measures.

Wall Street’s blue-chip S&P 500 index slid 2.6 per cent and the tech-focused Nasdaq Composite dropped 3.4 per cent. Europe’s regional Stoxx 600 index fell 2.9 per cent.

Monday’s pullback came as investors grappled with interest rate rises from the US Federal Reserve, intense inflation and emerging signs of strain in the world economy. The FTSE All-World barometer of global equities has fallen more than 16 per cent this year, while the Bloomberg aggregate index tracking the world’s fixed income markets has dropped 12 per cent.

Worries over rising rates have been compounded by indications that growth in big global economies could be slowing. Chinese export growth fell to its lowest level in two years last month, according to data released on Monday, which followed reports last week pointing to slowdowns in the German and French manufacturing sectors.

Signalling concerns over weaker demand, international oil benchmark Brent crude dropped more than 5 per cent to $106.57 a barrel.

“It’s difficult to say if everything is low enough and bearish enough,” said Joost van Leenders, equity strategist at Kempen Capital Management, adding that investors no longer expected the Fed to prioritise stabilising financial markets, as it did during the start of the coronavirus pandemic.

The Fed last week lifted its main interest rate by 0.5 percentage points, signalling that more large increases were on the horizon as it attempts to cool scorching inflation.

“No one knows with any certainty if that’s enough to quell future inflation,” said Nicholas Colas, co-founder of DataTrek Research. “Hence all the recent market volatility.” Economists expect data released on Wednesday to show US consumer prices jumped 8.1 per cent in April compared with the same month last year.

US government bonds initially came under selling pressure on Monday, pushing the yield on the 10-year US Treasury note rose above 3.2 per cent. However, the debt rallied later in the day, pushing the yield back to around 3.07 per cent.

Meanwhile, the 10-year US real-yield, which provides a snapshot of the long-term returns investors can earn after inflation on ultra-low risk securities, jumped as much as 0.1 percentage points on Monday to 0.35 per cent, having started the year about minus 1 per cent. It eased to around 0.27 per cent in afternoon trading on Wall Street.

Rising interest rates have profoundly changed the calculus for investors as they decide how much capital they should deploy towards risky assets.

Bitcoin, considered to be a highly speculative asset, tumbled more than 10 per cent on Monday to its lowest level since June last year. Meanwhile, Cathie Wood’s Ark Innovation exchange traded fund, which holds many shares that rallied strongly at the height of the pandemic, fell 7 per cent.

Rising interest rates and growth concerns have also fed into the global corporate bond market.

A measure of the cost of protecting against defaults on European corporate bonds rose on Monday to its highest level since 2020. The iTraxx Europe index, which tracks a basket of credit default swaps and is considered a gauge of investor sentiment towards risk in European markets, hit 100 basis points, up from 49bp at the start of the year.

Line chart of iTraxx Europe (spread, basis points) showing Investor concerns over the European corporate bond market are rising

Meanwhile, Bank of America analysts noted on Monday that the average price of investment-grade US corporate bonds has fallen to just above 93 cents on the dollar, below the trough reached during the pandemic-induced downturn in March 2020 and hitting levels not seen since May 2009, when the market was still recovering from the global financial crisis.

Additional reporting by Joe Rennison

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