Wall Street ends an ugly quarter with another volatile day.

“The conditions are not yet in place for a sustained turn in market sentiment,” said Mark Haefele, chief investment officer of UBS Global Wealth Management. “In our view, such an improvement will require compelling evidence that the threat from inflation is receding.”

The stock slide caps a wild week of trading, with a new crisis for investors emanating out of Britain after a proposed tax cut stoked inflation fears and raised concerns over the country’s borrowing needs, sending the British pound sharply lower and government bond yields soaring.

The whipsaw moves highlighted the challenges facing central banks around the world as they try to contain inflation and unwind pandemic-era support measures for markets, with the Bank of England pushed to step in and buy bonds again to help soothe markets from the fallout of the government’s proposed policies.

Yields on government bonds jumped this week, but they have been rising substantially all year. In the United States, the yield on the two-year Treasury bond, which is sensitive to changes in Fed policy, has surged almost 3.5 percentage points this year to 4.17 percent, with a hefty 1.22 percent rise in the third quarter alone. It puts the yield on course for its biggest yearly increase on record.

Higher rates and higher yields, as well as the United States’ relative economic health when compared to other countries around the world, have drawn investment to Wall Street, helping strengthen the dollar when compared with a basket of other currencies that represent major U.S. trading partners. By that measure, the dollar has just experienced its biggest quarterly rise since the first quarter of 2015 and is the strongest it has been in two decades.

Article source: https://www.nytimes.com/2022/09/30/business/stocks-bonds-third-quarter.html