How did stock indexes perform?
On Monday, the S&P 500, Dow and Nasdaq ended higher, led by gains for tech-related shares.
What drove the markets?
Stocks saw a mixed start, but soon turned lower across major benchmarks following remarks by Fed Gov. Lael Brainard, who indicated policy makers could begin aggressively shrinking the size of the central bank’s balance sheet as early as its next meeting in May.
The Fed will “continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting,” Brainard said at a conference sponsored by the regional Fed bank in Minneapolis.
“It’s a double-barreled tightening,” said Liz Ann Sonders, chief investment strategist at Charles Schwab, in a phone interview Tuesday. “It represents a tightening cycle unlike anything in the past.”
Read: Fed’s Brainard says inflation is ‘much too high’ with risks it might go even higher
Investors were also monitoring the war in Ukraine and U.S. economic data.
Ukraine President Volodimir Zelensky addressed the UN Security Council on Tuesday, following evidence of images and reports of atrocities allegedly committed by Russian soldiers around Kyiv, including the suburban city of Bucha.
“With geopolitics at the forefront of investors’ minds, the next few days could be rough and rocky for global markets. The devastation in Bucha has prompted not only the European Union but also world leaders to discuss new sanctions on Russia,” said Lukman Otunuga, senior research analyst at FXTM, in a note.
“As ongoing geopolitical risks fuel uncertainty and trigger volatility, this could sap risk sentiment, extending further support to safe haven assets,” he said.
Meanwhile, the U.S. Treasury has reportedly put a stop to Russia paying its debts via U.S. dollar accounts, while the European Union was expected to consider a ban on coal imports from the country.
“The overall environment remains hard to read as investors’ focus keeps being torn between lingering tensions with Russia, the prospect of an economic downturn brought by flattening yield curves and the sudden hawkish switch from the Fed,” said Pierre Veyret, technical analyst at ActivTrades.
Read: Stock-market bears outnumber the bulls for first time since mid-2019, says RBC
Treasury yields extended a rise after Brainard’s comments, with the yield on the 10-year Treasury noteTMUBMUSD10Y,2.829% moving slightly above that of the 2-year noteTMUBMUSD02Y,2.451%, undoing a recent inversion of that curve. Yield curve inversions, when that of shorter-dated notes are higher than longer-dated, are often viewed as a recession flag.
Read: Stocks are rallying because of what an inverted yield curve says about the Fed and inflation, strategist says
And: Dow transports selloff may be warning of something more than just a macro speed bump
Among U.S. economic data released Tuesday, the February foreign trade deficit fell 0.1% to $89.2 billion after an all-time high in January. Economists polled by The Wall Street Journal had forecast a $88.5 billion trade gap.
The Institute for Supply Management said its index of business conditions at service-oriented companies rose 1.8 points in March to 58.3%, rebounding from an omicron-induced slowdown and in line with forecasts. Readings above 50% are viewed as positive, with anything above 55% seen as exceptional.
“Growth during March was especially strong in Entertainment & Recreation, Accommodation & Food Services and Real Estate,” Jeffrey Roach, chief economist for LPL Financial, said in emailed comments on the ISM reading Tuesday. “Given the headwinds, I see this report as confirmation for our general investment thesis that we could still escape recession and modestly grow the latter half of this year.”
Which companies were in focus?
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How did other assets fare?
—-Barbara Kollmeyer contributed to this report.
