Investors should get some respite today after interest rate concerns, which briefly yesterday left the Nasdaq in “correction” territory.
The 10% drop since the Nasdaq’s November high comes amid heightened concerns about monetary policy tightening by the US Federal Reserve in early 2022, though the index closed in positive territory later in Monday’s session. .
The resilient finish means London should trade higher after the earlier bust for tech stocks exposed to higher interest rates.
Stock market optimism despite high rates
UBS Global Wealth Management expects three rate hikes from the US Federal Reserve this year, starting in March.
Additional hikes over the next two years should take the rate to between 1.75% and 2% by the end of 2024.
However, Mark Heifel, chief investment officer at UBS, believes there is no reason to think the equity rally is about to end.
He told TODAY: “Historically, stocks have performed well in the months leading up to the first rate hike of a cycle. Since 1983, the S&P 500 averaged 5.3% in the three months before the first Fed rate hike. Is.
“Furthermore, Fed policy normalization should not dent the outlook for corporate profit growth, which is being supported by strong consumer spending and above-trend growth from still-easy access to capital.”
UBS expects rates to rise only gradually and for the 10-year US Treasury yield to rise to 2% from 1.75% currently at 2% by June.
Markets stable ahead of Powell’s testimony
Investors may have been anticipating a calm session after heightened interest rate tensions yesterday sent the tech-heavy Nasdaq down as much as 3% in New York.
The sell-off comes amid speculation that the US Federal Reserve may hike rates four times in 2022, starting in March, against expectations for the last two hikes.
The rates outlook put pressure on the valuation of higher-growth stocks as the Nasdaq entered correction territory, down 10% from November’s highs.
Shares later declined to end a run of seven straight increases in the US 10-year bond yield, being above the 1.8% level for the first time since January 2020.
That means the Nasdaq ended last night’s session in positive territory, while futures trading on Wall Street is pointing to a more resilient start later.
The FTSE 100 index is also projected to open up 35 points at 7480.
CMC Markets analyst Michael Hewson said the focus will now be on the testimony of Federal Reserve Chairman Jerome Powell at his re-nomination hearing with the Senate Banking Committee.
Hewson said: “It looks like how aggressive the Fed can be in the coming months, when the markets may be a little off.
“When Powell testifies before US politicians, we can get a better idea of what the timeline and potential rate numbers may be facing as he continues to process recovery in the US economy. Is.”
The prospect of tighter monetary policy has affected the cryptocurrency market in recent days, with bitcoin trading below $40,000 at one point for the first time since September.