May 9, 2022 - Economy

Markets in free fall as investors sell everything

Illustration of a siren alarm encasing a stock trend line which climbs and then stagnates

Illustration: Annelise Capossela/Axios

Traders are hitting the sell button on virtually every key asset class — including stocks, bonds and bitcoin — ratcheting up the fear factor on Wall Street and sending the S&P reeling to its weakest levels in a year.

Why it matters: The Federal Reserve is laser-focused on taming inflation, and that’s making markets increasingly jittery as the U.S. economy sends mixed signals on growth.

  • While we've seen the economy contract last quarter, the jobs market remains as robust as it’s ever been.
  • Meanwhile, however, China’s extraordinary push to tamp down COVID infections via lockdowns has sparked increasing global economic fears.

This time it’s really different: The Fed’s pivot from super-accommodative to a “fire and brimstone” approach (in the words of JPMorgan global strategist Marko Kolanovic) to price pressures has sparked market volatility for weeks. But spiking bond yields, which are reacting to inflation and Fed expectations, underscore how government paper has relinquished its traditional role as a safe-haven when stocks are in turmoil.

  • Rising yields are hammering tech stocks, with the Nasdaq cratering by over 4 percent and many high-flying tech shares setting new 52-week lows.
  • Bitcoin fell to its lowest levels since 2021, zeroing in on $30,000 in price value — more than half its record high last fall — according to Yahoo Finance data.
  • Perhaps more tellingly, oil tumbled by more than 6 percent to $102, and is now well below multi-year highs.

What they’re saying: Treasury Secretary Janet Yellen said on Monday that markets were functioning in an orderly way, but that there was “potential for continued volatility and unevenness of global growth” in the face of the pandemic. Still, Wall Street analysts are somewhat less sanguine.

  • “There remain several risks that could upend the expansion long before the Fed turns restrictive or unsustainable imbalances emerge,” wrote JPMorgan’s Kolanovic on Monday. “The biggest near-term risk comes from China,” he added, calling the fallout from Beijing’s zero-COVID strategy “alarming.”
  • But wait — it gets worse. Jay Hatfield, CIO Jay Hatfield, chief investment officer Infrastructure Capital Management wrote that the government's push to reduce its balance sheet “will collapse the pandemic era bubble in crypto currencies, money losing tech companies and meme stocks."

Thought bubble: With markets in panic mode and dark clouds enveloping China, the Fed's job engineering a soft landing for the economy is getting tougher by the day.

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