One measure of investor anxiety, the Cboe Volatility Index , known as Wall Street’s fear gauge, on Friday notched its largest one-day gain in about five months to close at a five-week high of 28.21.
“More variables in any equation create greater uncertainty in terms of the outcome,” said Michael Farr, president of Farr, Miller & Washington. “We have more variables now than I can remember in my career.”
Chief among market participants’ worries is a Fed that has repeatedly ratcheted up its hawkish rhetoric as it gears up to fight the worst US inflation in nearly 40 years.
The hawkish stance was underlined on Thursday, when Fed Chair Jerome Powell said a half-point interest rate increase “will be on the table” at the central bank’s monetary policy meeting next month.
Traders in eurodollar futures on Friday priced in the Federal Reserve’s rate-hike cycle peaking at a higher level than previously expected, adding to worries that the scope of Fed tightening could hit US growth.
Rising Treasury yields have added to pressure on stocks and other risky assets. Real yields – which account for projected inflation – climbed into positive territory last week for the first time since March 2020, dulling the allure of equities in comparison to risk-free US government bonds.
Plenty of investors believe the economy – and markets – can remain resilient. Solita Marcelli, chief investment officer, Americas, at UBS Global Wealth Management, said the U.S. economy is robust enough to grow even if Fed hikes match current expectations. Reuters
