Investors Find Little Reason to Buy Stocks as Rates Fears Spread

It’s getting bleak for equity bulls hoping for a reprieve from the US stock market’s “higher-for-longer” tantrum.

The S&P 500 Index plunged to the lowest level since June on Tuesday, as the Dow Jones Industrial Average wiped out its gain for the year and the Cboe Volatility Index, better known as the VIX, popped above the psychologically important 20 level for the first time in four months.

The turbulence was sparked by a surprising increase in US job openings, something Jerome Powell has been watching as the Federal Reserve tries to tame stubbornly high inflation. His lieutenants have been hammering the theme that interest rates will need to stay high for a long period — Cleveland Fed President Loretta Mester and Atlanta Fed chief Raphael Bostic reiterated it over in the past two days — sending long-term Treasury yields to 16-year highs.

The problem is simply too few buyers. Hedge funds that chased the first-half rally have turned risk-averse, according to Citigroup Inc. Sentiment among retail traders has also soured as they plow cash into money-market funds returning 5%. And Corporate America slowed the pace of buybacks in the third quarter, according to Bank of America.

“It doesn’t seem like stock investors want to get in front of the daily spike in rates,” said Dan Eye, chief investment officer at Fort Pitt Capital Group. “The interest-rate environment needs to calm down before investors can focus on earnings season being a potential catalyst for stocks to move either higher or lower.”

Big Stock Declines Begin to Pile Up