Brazil’s Ibovespa Leads LatAm Losses; Fear of Further Rate Hikes Sinks NYSE

A roundup of Thursday’s stock market results from across the Americas

👑 Chile’s IPSA leads in LatAm:

Chile’s IPSA index (IPSA) was the only one in Latin America to close higher on Thursday, gaining 0.53%, a gain driven by shares in the energy, public services and non-basic consumer products sectors.

Shares of Colbun SA (COLBUN), Ripley (RIPLEY) and Energía Chile (ECL) pushed the IPSA higher on Thursday.

The government of President Gabriel Boric on Thursday decreed curfews in some of the areas affected by the forest fires that have already left hundreds of thousands of hectares devastated and at least 24 people dead in the country.

The measure will be implemented as of midnight in certain localities of the regions of Ñuble, Biobío and Araucanía. It is still difficult to quantify the economic damages left by the fires, but the executive has already announced plans to help those affected.

📉 A bad day for Brazil’s Ibovespa:

Brazil’s Ibovespa (IBOV) suffered the sharpest losses among Latin American markets on Thursday, falling 1.77%, with shares of Vale (VALE3) and Petrobras (PETR4) seeing the deepest declines.

According to sources quoted by Bloomberg, the Brazilian government is considering bringing forward the debate on the inflation target. Brazil’s economic team is considering bringing forward a review of the country’s inflation targets in an attempt to calm tensions between the central bank and President Luiz Inácio Lula da Silva, who has been publicly pushing for lower interest rates, according to Bloomberg News.

The national monetary council, the government body in charge of setting such targets, traditionally holds a debate on the matter in June, when it is expected to set a target for 2026. But Lula’s growing complaints that interest rates of 13.75% are stifling the economy have led members of the economic team to advocate bringing that discussion forward and possibly raising the targets.

On the other hand, it is keeping an eye on Bradesco’s (BBDC4) balance sheet due after the close of trading. The company’s shares ended the day down 2.54%.

🗽On Wall Street:

Wall Street couldn’t find many reasons to keep lifting stocks amid higher bond yields, hawkish Fedspeak and a surge in equity bullishness among retail investors that’s often seen as a contrarian indicator.

The S&P 500 wiped out a rally of almost 1%. Options traders continued piling into bets targeting a 6% Federal Reserve peak rate, nearly a percentage point higher than consensus. The two-year yield traded near 4.5%, and earlier pushed above the 10-year rate by the widest margin since the early 1980s — a sign of flagging confidence in the economy’s ability to withstand additional tightening.

The Nasdaq Composite (CCMPDL) dropped 1.02% and the Dow Jones Industrial Average 0.73%.

Adding to the drumbeat of officials signaling the central bank has a ways to go to curb prices, Fed Bank of Richmond President Thomas Barkin said it’s important to continue hiking to rein in inflation. Data on jobless claims reinforced the idea of a hot labor market that points to tight policy, while mortgage rates rose for the first time in more than a month.

“The market is questioning if it’s even possible for the Fed to walk the line to do what they’re aiming to do because it’s a very difficult job — slowing the economy down through interest-rate increases while keeping us from slipping into a severe recession,” said Chris Gaffney, president of world markets at TIAA Bank.

Amid so many uncertainties, some analysts see room for consolidation, especially after a surge that put stocks near overbought levels. To Katie Stockton at Fairlead Strategies, the biggest potential challenge for the market right now is overly bullish sentiment.

The latest survey from the American Association of Individual Investors showed US retail investors turned bullish for the first time since April, with the bull-bear spread rising to 12.5 from -4.7 a week earlier. The percentage of investors with a bearish view over the next six months fell to 25%, the lowest since November 2021.

“Well, as human nature never changes, sentiment ALWAYS follows price,” wrote Peter Boockvar, author of the Boock Report. “And the bulls are back now across the board. From a contrarian perspective, we now need to pay attention, and while not extreme and standing room only, the bull boat is getting filled up.”

For some market watchers, trades favoring disinflation are soon set to reverse as price increases prove more entrenched than anticipated.

This year, higher-duration sectors, such as tech and consumer discretionary have led stocks’ advance, while low-duration ones such as energy and utilities have underperformed. This is a reversal of the trend from late 2021, where investors started to shun high-duration stocks as inflation began to rise rapidly.

The Bloomberg Dollar Spot Index fell 0.1%, the euro rose 0.2% to $1.0734, the British pound rose 0.4% to $1.2117 and the Japanese yen fell 0.2% to 131.63 per dollar.

🍝For the dinner table debate:

The alleged Chinese spy balloon that flew across the U..had the capability to collect communications signals and was part of a broader intelligence effort spanning more than 40 countries, a US State Department official said Thursday.

High-resolution images provided by U-2 spy planes that flew over the balloon revealed equipment inconsistent with Beijing’s claims that it was a weather balloon that veered off course, the official said in a statement provided on condition of anonymity.

The statement, released ahead of State and Defense Department officials testifying in congressional hearings, represents the US government’s strongest description of the facts since the event first surfaced.

Leidys Becerra, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.