US stocks fell on Wednesday, all but wiping out hopes of a celebratory rally to end a disastrous year for equities, although Hong Kong-listed stocks soared as China eased its zero-Covid restrictions.
Wall Street’s benchmark, the S&P 500, fell 1.2%, while the tech-heavy Nasdaq Composite fell 1.4%.
China’s National Health Commission announced on Monday that it would drop quarantine requirements for incoming travelers from January 8, after earlier this month scrapping the requirement for positive Covid-19 cases to self-quarantine in centralized facilities. The decision bolstered stocks in Hong Kong this week, but fears of a further spread of the virus hampered U.S. stocks.
The United States said on Monday it would require air passengers arriving from China to show negative Covid-19 tests to enter the country as cases rose in China. Authorities estimate that around 250 million people, or 18% of the population, were infected with Covid in the first 20 days of December.
Hong Kong’s Hang Seng index rose 1.6%, with all sectors except real estate in positive territory. The index is expected to end the year down 14%, but has risen by a third since late October as Beijing eased pandemic restrictions that have hampered China’s economic growth since the start of 2020.
Iris Pang, chief economist for Greater China at ING, said Beijing’s easing of its zero-Covid policies would boost domestic consumption and travel-related industries in particular, even as economic growth in Europe and the United States United States was slowing down, hampering international demand for Chinese products.
“Our internal view is that the United States and Europe could enter a mild recession in the first half of 2023,” Pang said. “We therefore expect the Chinese government to strengthen its fiscal strength to support the national economy by continuing to build unfinished real estate projects and planning more transport, energy and technology infrastructure.”
US stocks have fallen this year as the Fed raised interest rates in its quest to stamp out inflation. The S&P 500 is down 20.6% year-to-date, on track for its worst annual performance since 2008. Due to the particular sensitivity of tech stocks to rising interest rates, the Nasdaq has been hit harder, down 34.7% this year, also on track for its worst performance since 2008.
Federal Reserve officials have suggested that high inflation rates mean US interest rates may need to rise above 5%, from the current level of between 4.25% and 4.5%.
“We came in hoping for a seasonal rally, and that hasn’t happened,” said Steve Holt, head of international equity sales at Baird. Tesla shares are down 40% in a month, Apple is down 11% and Amazon is down 11%.
“I’ve never seen the Fed this aggressive against the market in 30 years,” Holt added. “Value investors, those who want to get rich slower, have more fun.”
Commodity prices fell, with Brent, the international oil benchmark, down 1.3% at $83.26 a barrel.
Prices for short-term, interest-rate-sensitive US Treasuries were flat, with the yield on the two-year note falling 0.01 percentage point to 4.36%. The yield on the benchmark 10-year note added 0.03 percentage point to 3.88%, its highest level since early November. Yields fall as prices rise.
