Major US share indices fell around 2.5% in overnight trading, defying soothing news from the US Federal Reserve. The pressure fell hardest on tech shares, where concerns about dying Covid tailwinds outweighed surprisingly good earnings reports. Growth worries spread to other markets. Base metals fell, and cryptos were routed as the VIX volatility index surged.
Fed chairman Jerome Powell reassured markets that the Fed will maintain bond purchases and lower interest rates until inflation is above its 2% target and the US reaches full employment. However the Fed closed its monthly repurchase facility. Powell argued the emergency liquidity measure is no longer needed, but the move created jitters nonetheless.
Microsoft, Tesla and Facebook all reported better than forecast revenues and earnings for the fourth quarter of 2021, but all came under share price pressure. In each case, the increases came from the effects of the stay at home economy, and the dark side of vaccine optimism is that this earnings driver will diminish.
The challenge for the broader share market lies in the leadership of this handful of tech giants. Having accounted for a large proportion of recent gains, does a turn mean they could now account for significant share price damage?
Cryptos and base metals were caught in the downdraft. Bitcoin tested the US $30,000 level as CMC’s All Crypto Index fell more than 6%. Reactions in currency markets were more benign, giving hope to Asia Pacific investors that the reaction in this region could be more restrained.