Friday is proving a washout for investors as increasingly bigger bets on Federal Reserve tightening prompted traders to offload risk and haven alike before the weekend.

The technology-heavy Nasdaq 100 is on track for its worst month since 2008, short-dated Treasuries sold off and oil prices tanked as traders priced in four half-point Fed hikes by year-end. Even gold is falling. The U.S. dollar was the lone gainer, rising 0.7 per cent to touch the highest since June 2020.

“You can summarize today’s market in three letters: B-A-D,” said Mike Bailey, director of research at FBB Capital Partners. “My sense is investors are flip flopping between Fed stress and earnings, and today seems more focused on the Fed.”

RISKY CORNERS FRAY

The IPOX SPAC Index, which tracks the performance of a broad group of special-purpose acquisition companies (SPACs), has lost more than 3 per cent this week, while a basket of newly public firms has shed roughly 10 per cent. To Art Hogan, chief market strategist at National Securities, it makes sense that tech stocks were among the hardest-hit because rising rates put pressure on their valuations.

“We’re back to the old playbook of when yields move aggressively, when they have a parabolic day, everyone exits all risk assets and the high-growth names in particular,” he said by phone.

Other high-growth names have also come under pressure, with the ARK Innovation ETF (ticker ARKK) losing roughly 11 per cent this week. Meanwhile, a Goldman Sachs basket of long-duration stocks has plunged 10 per cent.

Bitcoin, the poster-child for speculation, fell as much as 3.50 per cent Friday, with the decline taking it below US$40,000 once again.

BOND BUST

The stress was evident in the bond market, where short-dated Treasuries -- the tenor most sensitive to rate-hike expectations -- continued to sell off. Yields on 2-year Treasuries reached 2.78 per cent on Friday, the highest level since December 2018. 

More than 200 basis points of tightening are priced in by year-end, with traders bracing for a series of 50-basis point hikes, with the first kicking off in early May. That would be the biggest such increase since 2000.

CRUDE SINKS

Oil prices sank as China’s efforts to stop the coronavirus’ spread meant its use of gasoline, diesel and aviation fuel in April is expected to slide 20 per cent from a year earlier -- the largest hit to demand since the lockdown of Wuhan more than two years ago. West Texas crude fell as much as 2.5 per cent to US$101.22 a barrel. 

HIT-OR-MISS HAVENS

Gold, typically regarded as a haven asset, fell as much as 1.3 per cent on Friday after Federal Reserve Chair Jerome Powell outlined his most aggressive approach to taming inflation to date, saying on Thursday that a 50 basis-point hike is “on the table” for the policy-setting meeting in May.

Meanwhile, the dollar gained against every other Group-of-10 currency on Friday as Treasury yields climbed. The Australian and New Zealand dollars were the worst-performing developed-market currencies.

“The move in the dollar is also reflective of the risk tone given the drags on global economic growth coming from high inflation, tighter monetary policy in portions of the EM space, and geopolitical factors,” said Stephen Gallo, head of European FX strategy at BMO in London.

Overall, markets are pricing in a lot of uncertainty, said Victoria Greene, founding partner and chief investment officer at G Squared Private Wealth. 

“It’s not a great outlook,” she told BTV. “We’re stuck in a quagmire in Ukraine, we see rising sanctions and anger against Russia, the world is getting smaller, we’re really not certain where China is going to come in on all this and regulation and how they’re going to respond to Russia and how we respond to their response to Russia. So yeah, I think right now it’s time to play defense.”