The S&P 500 saw selling pressure into and in the immediate aftermath of the US equity cash open, dropping to session lows of not much above the 3800 mark at one point (which meant the index was down 1.8% at worst levels). However, dip buyers came to the rescue and have since pushed the index back towards the 3950 mark; the S&P 500 currently trades in the 3930s and lower by about 1.1% on the day.
Downside in momentum stocks is the main story on Tuesday; Big Tech names such as Apple (-3.67%), Amazon (-1.38%), Microsoft (-1.43%), “bubble stocks” such as Tesla (-5.4%) and semiconductor makers (SOX semiconductor index down more than 2%) are all being sold as momentum plays unwind, whilst value stocks such as banks outperform. Tesla is also likely hurting as a result of downside in bitcoin, which is down over 8% on the day and back well below the 50K level again.
Given the heavy index weightings of these names, the downside in them gives off the impression that the broader market is perhaps performing a little worse on the day than it actually is; the equal-weighted S&P 500 is down about 0.5% versus losses of closer to 1.0% in the market-cap-weighted index.
Still, its risk-off as far as equity markets are concerned; equity investors seem a little more jittery about valuations (which are still very high by historic standards) following recent bond market moves and amid continued fears that inflation might surprise to the upside and, in doing so, prompt an earlier than current signalled Fed monetary policy tightening response.
A balanced tone to Fed Chair Jerome Powell’s remarks in the first day of his semi-annual testimony before Congress seems not to have gone to far to assuage these concerns; the Fed Chair stuck to the usual dovish script with regards to the outlook for Fed policy, reiterating rates will stay at the zero lower bound until the bank has hit its employment and inflation mandate and that its QE programme would not be tapered until substantial progress had been made towards these goals.
Powell was perhaps not as dovish as some had hoped when asked about recent upside in US bond yields; he did not seem to concerned by the moves, saying the moves reflected greater optimism about economic growth and inflation. However, Powell was a little more dovish on inflation, playing down “over-heating” concerns. Powell also noted that current Fed guidance is appropriate, which markets might take as a bit of a pushback against recent hawkish moves in money market pricing which, as recently as Monday, placed a 70% probability on the Fed hiking rates by the end of 2022 (versus current Fed guidance not to hike through 2023).
Elsewhere, a strong US Conference Board Consumer Confidence February survey, which saw the headline index rise to 91.3 versus analyst expectations of a modest drop to 90.0, was ignored. Lynn Franco, senior director of Economic Indicators at The Conference Board, commented that “after three months of consecutive declines in the Present Situation Index, consumers’ assessment of current conditions improved in February… (and) while the Expectations Index fell marginally in February, consumers remain cautiously optimistic, on the whole, about the outlook for the coming months”.