Asian stocks fall as markets watch Fed, China ommicron cases

Asian markets also have their eyes on the US Federal Reserve, which is expected to tighten interest rates this year. What happens in China is likely to have regional repercussions as well.

Major companies, including automakers such as Toyota, have been counting on a recovery in supplies of semiconductor chips and other products from China and the rest of Asia as vaccinations and other measures to prevent the coronavirus progress. The recent increase in infections from ommicron has shaken such hopes.

“China continues to struggle with a rise in the number of COVID-19 cases, with restrictive measures to contain the spread ahead of the Winter Olympics in February. While it may be too early to say, the risks that lurk may stem from supply chain disruptions exacerbating price pressures, or a shift in China’s zero-COVID approach,” said Yeap Jun Rong, market strategist at IG in Singapore.

On Wall Street, a broad selloff caused the S&P 500 to drop 2% early on, but a burst of buying in the late afternoon caused the benchmark index to lose just 0.1%. The Dow Jones Industrial Average fell 0.5% after falling 1.6%, and the tech-heavy Nasdaq gained less than 0.1% after falling 2.7%.

The latest pullback followed a sell-off last week as investors shifted positions ahead of the Federal Reserve to raise interest rates this year, among other measures aimed at lowering inflation. Wall Street is trying to better understand when and by how much the Fed will raise interest rates.

“It has confused the market a bit with the uncertainty of it all,” said JJ Kinahan, chief strategist at TD Ameritrade. “I would expect volatility to remain high for the remainder of the first quarter as we continue to grapple with this demand.”

The S&P 500 fell 6.74 points to 4,670.29. The decline extended the index’s losing streak to five days. It is now about 2.6% lower than the all-time high a week ago.

The Dow fell 162.79 points to 26,068.87, after falling 591 points to begin with. The Nasdaq rose 6.93 points to 14,942.83, breaking a four-day losing streak. Shares of small companies also lost ground. The 2000 Russell fell 8.66 points, or 0.4%, to 2,171.15.

The sale began to lose momentum at the same time as the rise in government bond yields slowed. The 10-year Treasury briefly hit 1.84% before slipping back to 1.76% by late afternoon. That matches where the yield was late Friday.

In the beginning, when bond yields rose, technology stocks were the biggest drag on the S&P 500. Higher interest rates make the stocks of expensive technology companies and other expensive growth companies less attractive to investors. returns rise. The tech sector was the largest weight in the market through January and is coming off its worst week since October 2020.

Major tech stocks overpower the S&P 500 because of their sheer size. In the new year, the tech sector accounted for 29.2% of the S&P 500.

Higher interest rates could help curb the high inflation sweeping the world, but they would also end conditions that have put financial markets in “easy mode” for many investors since early 2020. The Fed has said it will cut its bond purchases, which have helped keep interest rates low. The market now estimates the probability of the Fed raising short-term interest rates by at least a quarter point in March at about 78%. A month ago it was about 36%.

Industrial stocks, banks and a mix of companies dependent on consumer spending were responsible for much of the decline in the S&P 500 Monday. Those losses were contained by gains in healthcare, technology and communications.

A mix of deal news and financial updates set several major stocks in motion.

Take-Two Interactive, creator of “Grand Theft Auto,” plunged 13.1% for the biggest drop in the S&P 500 after announcing a deal to buy Zynga, yielding “Words With Friends” and “Farmville.”