Wall Street rally fades as inflation fears haunt markets

US stocks made a marginal gain after a volatile trading day on Tuesday as investors tried to navigate an increasingly complex outlook for monetary policy and the global economy.

The broad S&P 500 gauge, which closed down 3.2 percent on Monday, wavered between gains and losses but rose 0.2 percent by late afternoon.

The tech-focused Nasdaq Composite, which fell more than 4 percent in the previous session, gained 1 percent. Europe’s regional Stoxx 600 added 0.7 percent, tracing part of the previous day’s 2.9 percent drop.

Global stocks posted their worst day since June 2020 on Monday. Tuesday’s swings reflected tension between investors keen to buy the market’s decline and growing caution about the outlook.

The Federal Reserve last week raised its interest rate by half a percentage point for the first time since 2000, while the UK, Australia and India also raised borrowing costs.

“The overall backdrop for the markets is not good,” said Salman Baig, portfolio manager at Unigestion, referring to the Fed’s tighter monetary policy, persistently high global inflation, Russia’s invasion of Ukraine and a slowdown. economy in China driven by its zero covid policies. .

Baig added that in equity markets, he would expect “the troughs to continue to get deeper and the peaks to continue to get lower, and that we basically have a downward trend.”

In debt markets, the yield on the 10-year US Treasury note fell 0.05 percentage point to 2.99 percent as fixed income investors raised the low-risk asset to reflect recession fears. . Bond yields fall as their prices rise.

The equivalent German bond yield fell 0.10 percentage point to 1 percent, while the Italian yield fell 0.15 percentage point to 3.0 percent.

In a speech on Tuesday, New York Fed President John Williams said the US central bank’s “challenge” was “to bring inflation down and keep the economy strong.”

Altaf Kassam, investment strategist at State Street Global Advisors, warned that the market mood will remain bearish.

“There really isn’t a good short-term outcome,” he said. “If central banks are too dovish, inflation spirals out of control, but if they target inflation and raise interest rates, which is one of the few tools they have, that will have a huge impact on growth.”

US inflation data due for release on Wednesday is expected to show consumer prices rose 8.1 percent year-on-year in April, after rising 8.5 percent in March.

The Vix index, a measure of expected volatility known as Wall Street’s “fear gauge,” fell slightly from 34.75 to 33.08 but remained well above its long-term average of 20, which indicates expectations of more changes in the stock market to come.

The Nasdaq has closed more than 2 percent higher or lower in 12 trading days over the past month.

This story was changed to clarify that the drop in global stocks, rather than Wall Street stocks, on Monday was the steepest since 2020. This story was also changed to clarify that the Federal Reserve last raised rates by half percentage point in 2000. The story was also changed to show that the Nasdaq gained or lost more than 2 percent in 12 trading days over the last month.

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