Bond yields have fallen. The yield on the 10-year Treasury fell to 1.81 percent from 1.84 percent late Wednesday.
The U.S. economy expanded 5.7 percent in 2021, the strongest growth in the calendar year since a 7.2 percent surge in 1984 after the previous recession. It ended the year by growing at an unexpectedly fast 6.9 percent annual pace from October to December as businesses replenished their inventories, the Commerce Department reported.
The upbeat report comes a day after the Federal Reserve raised some concerns about how quickly it will ease support for markets and the economy. It said it was “expected to be appropriate soon” to raise interest rates, and investors expected the first in a series of rate increases to happen in March. The Fed also said it would cut monthly bond purchases, intended to lower longer -term rates, in March.
Tesla shares fell after it announced it would delay the launch of new models in 2022.Credit:Bloomberg
The Fed is monitoring the impact of inflation on businesses and consumers and Fed Chair Jerome Powell acknowledged that the pressure is not dropping. That could mean the central bank needs to take a more aggressive approach to raising interest rates and removing the support it has placed for the markets.
Businesses from a wide range of industries have been warning investors for months that supply chain problems and higher raw material costs have damaged operations. Higher prices passed on to consumers could spur spending retreat and hurt economic growth.
Investors closely monitor the latest round of company earnings to gauge how many companies are hurting by inflation and how they expect it to affect them going forward.
The technology sector has been particularly affected by supply chain problems with long -standing computer chip shortages. Semiconductor equipment maker Lam Research fell 6.6 percent after saying supply chain issues worsened in December. Chipmaker Intel fell 6.7 percent after giving investors a poor earnings forecast.
The chip shortage continues to be detrimental to the automotive industry. Tesla fell 11.2 percent after telling investors that the shortfall would prevent the company from launching new models in 2022.
Solid earnings have helped push shares for many other companies higher. ServiceNow rose 9.8 percent after the software maker that automates the company’s technology operations reported strong financial results. Electronic storage maker Seagate Technology rose 7.1 percent and jeans maker Levi Strauss rose 8.8 percent after also reporting encouraging financial results.
Each major index is in red for the year. The S&P 500 was down 9.2 percent. The collapse is having an impact on initial public offerings after a record 2021, said Matthew Kennedy, senior IPO market strategist at Renaissance Capital.
Three large companies stopped their IPOs after setting a suggested price, he said, compared to a postponement in January 2021. Many smaller deals have delayed their offers.
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“The current market volatility makes it almost impossible to make deals,” he said.
He also said the change in Fed policy has scared investors, especially for growth stocks, where even a few rate increases could have an impact on the value of future cash flows. He added that the reset for the IPO market could be healthy in the long run and part of the natural market cycle.