Stocks crash as US yields reach multi-year highs
18 January 2022
US equities tumbled Tuesday, following solid gains in US yields during Monday's session.
US yields continue to rise sharply, with the 10-year jumping above 1.8% for the first time since January 2020, posting new cycle highs. At the same time, the 2-year yield advanced above the psychological 1% threshold. The last time it was above that level was in February 2020.
Traders continue to price in more and more rate hikes in 2022. Currently, four rate hikes are expected this year, with the first one likely happening at the Fed's March meeting. Additionally, JPMorgan Chief Executive Officer Jamie Dimon said Friday the central bank could raise rates as many as seven times. That would undoubtedly be a hawkish surprise.
At the same time, US real yields are spiking higher, with the 30-year real yield trying to get back from negative territory. That could be a confirmation signal that the Fed will slow inflation over the following months. On the other hand, the short to medium real yields remain below zero, but the trend is clear – they are rising.
The Nasdaq 100 index dropped nearly 2% today, falling toward the 200-day moving average at 15,000 USD. The SP500 and Dow Jones were down circa one percent at the time of writing. EU bourses also fell as markets slowly price in a possible rate hike in the eurozone in Q4.
At the same time, precious metals declined, sending silver below 23 USD again and gold toward 1,800 USD.
So far, the USD has remained unimpressed by raising yields, and the USD index is about to lose the long-term uptrend line, possibly resulting in further weakness.
On the other hand, oil seems unstoppable, flying above 85 USD again and targeting the magical level of 100 USD if this bullish momentum persists.