Stocks Extend Drop Before Nvidia, Bonds Hold Loss: Markets Wrap

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(Bloomberg) — Global equities headed for their longest losing streak in more than two months as mounting inflation concerns drove bond yields higher, pressuring stocks and prompting investors to rethink valuations after a record-breaking rally.

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MSCI’s All Country World Index slipped 0.2%, set for a fourth day of declines, as the firm’s Asia Pacific gauge dropped 1.1%. South Korea’s Kospi, a key barometer for artificial intelligence-related investments, fell more than 2%, with Samsung Electronics Co. declining after its labor union decided to go on strike. Futures indicating losses will spread to Europe and the US.

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Brent crude held above $111 a barrel, with no sign of easing in the Iran conflict. That’s stoked inflation concerns, weighing on government bonds globally. Yields on the 30-year Treasuries climbed to levels last seen in 2007 on concern elevated energy costs may push the Federal Reserve toward an interest-rate hike rather than a cut. 

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Global stocks have retreated from all-time highs after investors spent weeks brushing aside concerns over the war in the Middle East on optimism that AI spending would continue to fuel corporate earnings growth. Attention is now turning to Nvidia Corp.’s earnings on Wednesday, with investors increasingly questioning whether the AI-driven rally has run too far, too fast.

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“The recent rise in yields is a negative trend driven by inflation concerns stemming from Middle East tensions,” said Kazunori Tatebe, chief strategist at Daiwa Asset Management in Tokyo. Unlike the positive yield rise backed by economic strength, which would boost corporate earnings, “when yields rise for negative reasons, it tends to weigh not only on growth stocks but on equities broadly,” he said.

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The 30-year yield climbed as high as 5.20% Wednesday, a level last seen during the global financial crisis.

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Longer-maturity government bond yields have surged to the highest levels in almost two decades, according to a Bloomberg gauge. The index, which tracks government bonds maturing in 10 years or longer, has dropped 4.6% this year on concern accelerating inflation will convince central banks to raise rates.

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“The issue of rising bond yields is still something which could create problems for today’s expensive stock market,” said Matt Maley at Miller Tabak.

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What Bloomberg Strategists Say…

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“Don’t let the panic in government bonds distract you: Financial conditions are still relatively loose and supportive for risk assets. That’s because the sharp rise in global benchmark yields isn’t feeding through to broader financial stress.”

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— Garfield Reynolds, MLIV. For full analysis, click here.

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In other corners of the market, the Bloomberg Dollar Spot Index held near its highest level in six weeks, while gold, a non-yielding asset, edged lower to around $4,470 an ounce.