Stock markets fall as investors react to rising inflation

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On Friday, the yield on two-year Treasury bills jumped to 3.06%, up about a quarter point, while the yield on 10-year Treasury bills rose to 3.16%, up about a tenth of a point.

Ultimately, for investors, the concern is how high prices and rising borrowing costs will affect consumer spending and corporate earnings. Absorbing the costs would hurt corporate profits, but passing them on could make the economy’s problems worse, said Yung-Yu Ma, chief investment strategist for BMO Wealth Management in the United States.

“It’s a very difficult time,” Ma said. Most companies are unlikely to maintain profit margins in the face of rising energy costs, he said.
Stock analysts made what Mr Ma called “extremely optimistic” projections for earnings, which he said are likely to be revised in the coming months and ultimately translate into lower share prices.

This week, shares of Target fell after cutting its profit forecast for the second time in three weeks as inflation and changes in customer habits ate away at its margins and left it with too much inventory. unsold items, which he said he would try to sell at a discount.

The S&P 500 is now down 18.7% from its Jan. 3 high, bringing it back within reach of bear market territory – a 20% drop from a high – signaling a serious shift in investor sentiment on Wall Street. The index briefly dipped into bearish territory last month, before recovering to close just above this psychologically significant level.

Phil Orlando, the chief equity strategist at Federated Hermes, an asset management firm, said in an interview that he expected the market to fall further, perhaps 10% below levels. current over the summer. He favors so-called value stocks, such as those in the energy, financials and healthcare sectors, over growth stocks, such as technology companies, because they have cheaper and more promising valuations in this environment. .

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