(Reuters) - U.S. stock indexes renewed their slide on Monday after suffering their worst week in two years last week amid fears of rising U.S. wages that lifted Treasury bond yields to the highest levels in four years on Monday.
Signs that inflation is firming have raised some traders’ expectations that the Federal Reserve may hike interest rates four times this year. Fed officials have indicated that three rate hikes are likely.
Markets opened sharply lower after Friday’s rout, then stabilized before crumbling after midday. The S&P 500 was last down 1.34 percent, putting it more than 5 percent below the record high set on Jan. 26. The Dow Jones industrials were down 1.5 percent and the Nasdaq was down 0.77 percent.
MONA MAHAJAN, U.S. INVESTMENT STRATEGIST, ALLIANZ GLOBAL INVESTORS, NEW YORK
“We came into the year with this almost parabolic move upward and I think that was really been driven by three pillars of momentum: economic momentum both here in the U.S. and globally, it was earnings momentum partly driven by tax reform but just upside to earnings estimates. And then it was rates. Rates came in the year around 2.40. What has changed? Obviously it’s that third pillar. Rates are now hovering around 2.85.
“We are getting some profit taking on some of that parabolic move upward, but we also last week got some confirmation on why this rate move may not just reverse and head back downward.”
RICHARD BERNSTEIN, CEO, RICHARD BERNSTEIN ADVISORS, NEW YORK
“I think what you’re getting is a recalibration in both the bond and stock markets.
“Nobody can time short-term corrections. The question is whether you’re heading for a multi-quarter curl-your-toes market in equities and that’s not on our radar.”
GORDON CHARLOP, MANAGING DIRECTOR, ROSENBLATT SECURITIES, NEW YORK
“This is a desultory market at the moment. People are focused a little bit on rates. In the absence of a compelling reason to reverse a trend, it usually doesn’t. So, right now, what is the motivation for something to slam on the brakes and turn this thing around and right now there just doesn’t seem to be any.”
“Either we are going to stop at some point, sharply turn and catapult to the upside or we are going to start to catch some of the lower end of the range. Right now it seems like the latter is winning.
“The VIX is up, frankly from what we are seeing at the moment, I don’t get the sense guys are laying in the weeds waiting for this thing. Guys are looking for some reason to get involved and I don’t think we’ve gotten there yet.”
PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW ASSET MANAGEMENT, CHICAGO
“We’re pretty much maintaining portfolios at this point. We finally got the correction we were all kind of figuring would happen. It feels a lot more painful only because we haven’t seen it in 14-15 months or so, and it’s certainly, from the way we look at it, healthy.
“We didn’t see a lot of the deterioration ahead of the market peak at the end of January that you would normally see. So, as a result, we’re looking at it as a correction that will run its course. The market has caught the flu that everybody else has and like everybody else’s flu, I don’t think its terminal, but it’ll be something we’ll have to live with for a while.”
BONDS: The 2- US2YT=RR Treasury note yield eased to 2.1050 percent, while the 10-year US10YT=RR bond yield rose to 2.8850 before, the highest since January 2014, before slipping back to 2.8299.
FOREX: The dollar index .DXY was up 0.35 percent.
VIX: The Cboe volatility index rose above 20 for the first time since Nov. 2016 and was last up 4.20 at 21.51.
Americas Economics and Markets Desk; +1-646 223-6300