by Yuri Kageyama
TOKYO (AP) – Asian stocks rose on Tuesday, reflecting broad overnight gains on Wall Street, while trading in China and most other regional markets closed for the Lunar New Year holidays.
Japan’s benchmark Nikkei 225 rose 0.5% to 27,139.89 in morning trade. Australia’s S&P/ASX 200 rose 0.4% to 6,996.80.
Wall Street ended the turmoil in January on concerns that a hike in interest rates would make everything more challenging in the markets. Shares closed higher but still posted their worst monthly loss since the early days of the pandemic.
Investors expect the Federal Reserve to start raising interest rates in March to fight inflation. Ultra-low rates and other incentives helped the markets recover from the initial shock of the coronavirus pandemic, and then backed the stunning gains.
The S&P 500 rose 1.9% to close at 4,515.55, back from the initial decline. Still, the benchmark index fell 5.3% in January, its worst month since falling 12.5% in March 2020, when it abruptly shut down the global economy after the pandemic.
The Dow Jones Industrial Average rose 1.2% to 35,131.86. The Nasdaq jumped 3.4% to settle at 14,239.88. Both also ended in the red for January, with the Dow down 3.3% and the Nasdaq down 9%.
The Federal Reserve is about to begin to roll back tremendous stimulus to the economy and markets.
But the uncertainty about how much and how fast the Fed will move has helped to cause severe volatility on Wall Street.
“A really bad month like January leads to systematic buying at the end of a really bad month, and it’s certainly happened in the last day or two,” said Scott Lander, chief investment officer at Horizon Investments.
The heaviest losses of the month have focused on those segments of the stock market which are considered the most expensive. Much of the focus has been on high-growth technology stocks, which were the absolute stars of the pandemic amid hopes they could grow regardless of the economy.
Tech shares in the S&P 500 rose 2.7% on Monday, but the sector ended the month up 6.9%. The monthly decline was deeper for tech stocks like chipmaker Nvidia, which jumped 7.2% on Monday but posted a 16.7% skid for January.
The stock market struggles to accommodate higher rates. When bonds pay more in interest, investors feel less need to access stocks and other riskier investments in search of returns. This time, the Fed is also shutting down what is colloquially known as the “money printer,” which it’s using to buy bonds to keep long-term rates low, and it’s likely to hurt the economy. Having that around will remove some of those extra dollars.
Strategists at Morgan Stanley say markets could have a harder time than usual with this rate-hike campaign, as growth could slow to slowing for the economy and corporate earnings when the Fed is going to go ahead.
He pointed to what he saw as worrying signs in data about US manufacturing, among other factors.
“We remain a seller of rallies and of the view that the S&P 500 fair value remains near $4,000,” strategists led by Michael Wilson wrote in a report.
Others on Wall Street are not as pessimistic. This is in large part due to widespread expectations that corporate profits will continue to rise, as stock prices track corporate profits over the long term. For the full year of 2022, analysts forecast S&P 500 earnings growth of 9.5%, according to FactSet.
“It should be clear by now that a strong pivot in monetary policy will make this year very different from last year,” wrote Americas Solita Marcelli, chief investment officer, UBS Global Wealth Management, in a recent note. “Nevertheless, we think investors should ignore the fact that the economy remains strong, which should limit downside from current levels.”
The yield on the 10-year Treasury rose to 1.78% from 1.77% on Friday. The two-year yield, which runs higher on expectations about what the Fed will do with short-term rates, rose from 1.15% to 1.18%.
The Fed seems to have license to act aggressively, inflation is at its highest level in nearly 40 years and the job market looks strong.
In energy trading, benchmark US crude rose 20 cents to $88.35 a barrel in electronic trading on the New York Mercantile Exchange. On Monday, it rose $1.33 to $88.15 a barrel. Internationally, Brent crude rose 22 cents to $89.48 a barrel.
In currency trading, the US dollar fell from 115.13 yen to 115.08 Japanese yen. The Euro is priced at $1.1233, which is less than $1.1236.
AP Business Writers Stan Cho and Alex Viega contributed.