U.S. stocks were modestly higher on Tuesday, bouncing back from a multi-session sell-off as equity investors hunted for bargains, but the greenback lost altitude and Treasury yields jumped in the wake of an unexpected policy pivot from the Bank of Japan (BOJ).
All three major U.S. equity indexes opened in the red but pulled a U-turn within an hour, while a jump in the yen sent the dollar lower, and 10-year U.S. Treasury yields touched their highest level this month in reaction to Japan’s central bank’s surprise policy change to allow long-term interest rates to rise.
“Japan has been consistently consistent for many years,” said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. “The slightest tweak in their policy has investors scratching their heads as to how to interpret that going forward.”
As of Monday’s close, the benchmark S&P 500 had fallen 5% from last Tuesday.
Indeed, the S&P 500, the Dow and the Nasdaq are all on track to notch their biggest annual percentage drops since 2008, the darkest year of the global financial crisis, largely due to persistent inflation the Fed’s increasingly hawkish battle against it.
“A calibration is happening with regards to the Fed’s language last week, and the market is digesting it,” said Keator, who added that “there’s a lot of work (the Fed has) done this year that will take time to take root.”
“It’s better to pause than to pivot and cut, because the Fed’s been vocal about the fact that it’s not their intention to reverse course any time soon,” Keator said.
The Dow Jones Industrial Average (.DJI) rose 135.15 points, or 0.41%, to 32,892.69, the S&P 500 (.SPX) gained 9.72 points, or 0.25%, to 3,827.38 and the Nasdaq Composite (.IXIC) added 13.22 points, or 0.13%, to 10,559.25.
European stocks were pulled lower by interest rate sensitive tech and industrial stocks following BOJ’s announcement that it would allow long-term interest rates to rise, joining its global counterparts in their inflation-taming policy tightening.
The pan-European STOXX 600 index (.STOXX) lost 0.40% and MSCI’s gauge of stocks across the globe (.MIWD00000PUS) gained 0.23%.
Emerging market stocks lost 0.63%. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 1.11% lower, while Japan’s Nikkei (.N225) lost 2.46%.
U.S. Treasury yields jumped after Japan’s central bank broadened its yield curve control, which prompted a global bond sell-off.
Benchmark 10-year notes last fell 27/32 in price to yield 3.6825%, from 3.583% late on Monday.
The 30-year bond last fell 67/32 in price to yield 3.7348%, from 3.623% late on Monday.
Japan’s surprise policy review sent the yen to a four-month peak against the greenback, and the dollar fell sharply against a basket of currencies.
The dollar index fell 0.63%, with the euro up 0.01% to $1.0606.
The Japanese yen strengthened 4.12% versus the greenback at 131.50 per dollar, while Sterling was last trading at $1.2154, up 0.07% on the day.
Crude prices forfeited earlier gains on worries that a major U.S. winter storm could convince millions of Americans to curb their travel plans.
U.S. crude settled unchanged at $75.19 per barrel, while Brent rose 0.24% to settle at $79.99 on the day.
Gold breached the $1,800 level on the back of the falling dollar.
Spot gold added 1.6% to $1,816.15 an ounce.
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