- US stocks fell on Friday morning, extending a sharp sell-off the day before.
- The spiking bond yields that have driven stocks lower cooled initially, with the 10-year Treasury yield retreating from a 14-month high.
- Bank stocks then dipped and the 10-year surged after the Fed announced it will not extend a pandemic-era rule that allowed banks to maintain lower amounts of capital.
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US stocks fell on Friday after the Fed announced that its temporary pandemic-era rule that relaxed bank capital requirements will not be extended after March 31. That offset the positive effect of stabilizing bond yields, which then spiked on the news.
Bond yields have risen as investors grow concerned that the $1.9 trillion fiscal stimulus will cause a rise in inflation, leading the Federal Reserve to change policy and raise rates sooner than expected.
Chetan Ahya – Morgan Stanley’s chief economist – is concerned that a rapid labor-market recovery could push inflation levels to spike and breach the Fed’s 2.5% inflation “tolerance threshold” as soon as 2022. That could bring a “disruptive shift in expectations for Fed tightening,” and lead to heightened stock market volatility down the road, he said on a recent podcast.
Here’s where US indexes stood shortly after the 9:30 a.m. ET open on Friday:
- S&P 500: 3,890.44, down 0.6%
- Dow Jones industrial average: 32,515.07, down 1.1% (347 points)
- Nasdaq composite: 13,110.62, down 0.1%
Elsewhere, Fed Chair Jerome Powell said that central bank digital currencies must coexist with cash and other forms of money. The pandemic has highlighted the limitations of the current payment system, but collaboration is required to improve it, he said.
Oil prices extended losses after tumbling 7% on Thursday as investors second-guessed the recent rally and reacted to the slow rollout of coronavirus vaccines in Europe that could dent demand growth. West Texas Intermediate crude fell as much as 1.6%, to $59.06 per barrel. Brent crude, oil’s international benchmark, fell by 1.6%, to $62.24 per barrel, at intraday lows.
Gold jumped slid as much as 0.5%, to $1,728.57 per ounce.