By YURI KAGEYAMA, AP Business Writer
TOKYO (AP) — Asian stocks slipped Tuesday after a volatile day on Wall Street. The Federal Reserve’s inflation-fighting measures and the possibility of a conflict between Russia and Ukraine are weighing on markets.
Japan’s benchmark Nikkei 225 slipped 2.0% in morning trade to 27,027.23. Australia’s S&P/ASX 200 fell 2.3% to 6,972.10. The South Korean Kospi fell 2.1% to 2,734.03. Hong Kong’s Hang Seng fell 1.7% to 24,242.91, while the Shanghai Composite fell 1.0% to 3,487.46.
“The surprise U.S. market reversal overnight doesn’t seem to bring relief to today’s Asian session,” said Yeap Jun Rong, market strategist at IG.
A late-day buying spree pushed the benchmark S&P 500 to a 0.3% gain after pulling it out of so-called corrective territory – a decline of 10% or more from its most recent peak. The Dow Jones Industrial Average had fallen more than 1,000 points before rallying and ending higher.
“We’re in this wait-and-see mode, which is almost the most uncomfortable place, so I think the market is really struggling with that,” said Lindsey Bell, chief market and financial strategist at Ally Invest.
Monday’s wild reversal followed a three-week decline for the S&P 500, ending with its worst weekly streak since the start of the pandemic.
The S&P 500 fell 4% on Monday. The index has recovered from an intraday loss that has only been significant three times in the past. The tech-heavy Nasdaq index rose 0.6% after recovering from a decline of nearly 5%.
Early in the day, benchmark equity indices flirted with nearly 4-month lows as investors anticipated guidance from the Fed later this week on its plans to hike interest rates to tame inflation, which is at its highest level in almost four decades.
The Fed’s short-term rate has been close to zero since the pandemic hit the global economy in 2020, fueling consumer and business borrowing and spending.
But rising prices at supermarkets, car parks and petrol stations are raising fears that consumers are cutting spending to limit pressure on their budgets. Companies have warned that supply chain issues and rising raw material costs could squeeze profits.
The Fed has kept downward pressure on long-term interest rates by buying trillions of dollars in government and corporate bonds, but those emergency purchases are set to end in March. The rate hike aims to slow economic growth and the rate of inflation.
“There is short-term panic and part of that is the high level of uncertainty around what the Fed is going to do,” said Sylvia Jablonski, chief investment officer at Defiance ETFs.
Investors are also watching developments in Ukraine. Tensions soared Monday between Russia and the West over fears that Moscow is planning to invade Ukraine, with NATO outlining potential deployments of troops and ships.
The S&P 500 rose 12.19 points to 4,410.13. It is now 8.1% below the all-time high it reached on January 3.
The Dow rose 99.13 points to 34,364.50. The Nasdaq gained 86.21 points to 13,855.13.
Small company stocks also rebounded. The Russell 2000 rose 45.59 points, or 2.3%, to 2,033.51. The index was down 2.8%.
The selling wave also extended to cryptocurrencies. Bitcoin fell as low as $33,000 overnight, but rallied back above $36,000 by late afternoon. Still, the digital currency is well below the high of over $68,000 reached in November.
Retailers saw some of the biggest gains in the return: the spread jumped nearly 8%.
The market awaits news from Chairman Jerome Powell on Wednesday after Fed policymakers wrap up a two-day meeting and present their latest thoughts on the economy and interest rates.
Some economists worry that the Fed is moving too slowly. Others worry that the Fed is acting too aggressively. They argue that many rate hikes would risk provoking a recession and would in no way slow inflation. From this perspective, high prices primarily reflect tangled supply chains that Fed rate hikes are powerless to remedy.
When the Fed raises its short-term rate, it tends to make borrowing more expensive for consumers and businesses, which slows down the economy in an effort to reduce inflation. This could reduce corporate earnings, which tend to dictate stock prices over the long term.
The European STOXX 600 index closed down 3.6% on worries about Fed tightening and worries about the situation around Ukraine. The Russian ruble also fell after US President Joe Biden indicated that in the event of a Russian invasion, the United States could block Russian banks from accessing dollars or impose other sanctions.
Investors are watching the latest round of corporate earnings, in part to gauge how companies are handling rising prices and what they plan to do as inflation continues to pressure operations.
On Tuesday, American Express, Johnson & Johnson and Microsoft publish their results. Boeing and Tesla release their results on Wednesday. McDonald’s, Southwest Airlines and Apple release their results on Thursday.
In energy trading, benchmark U.S. crude added 38 cents to $83.69 a barrel in electronic trading on the New York Mercantile Exchange. It fell from $1.83 to $85.31 on Monday. Brent, the international standard, rose 52 cents to $86.79 a barrel.
In currency trading, the US dollar fell to 113.77 Japanese yen from 113.96 yen. The euro traded at $1.1316, down from $1.1326.
AP Business Writers Damian J. Troise and Alex Veiga contributed.
Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.