US stocks came off session lows, buoyed by gains in technology companies, though sentiment remains sour as recession fears continue to grip the market. Treasuries gained and oil tumbled.

The S&P 500 pared losses after dropping more than 2 per cent, as easing energy prices and bond yields took pressure off higher-valuation shares. The tech-heavy Nasdaq 100 rose more than 1 per cent after falling as much as 1.9 per cent earlier in the session. Treasury yields declined, with the 10-year yield around 2.82 per cent.

The dollar rose to its strongest level in more than two years, making commodities priced in the currency less attractive. West Texas Intermediate crude futures dropped the most since early March on concerns that a global slowdown will impact demand. Copper, which is considered an economic bellwether, fell to its lowest price in 19 months. Energy and mining stocks plunged as commodities declined, dragging the S&P 500 lower. 

“They’re getting that one, two punch of lowering demand expectations and then also a stronger dollar,” said Shawn Cruz, head trading strategist at TD Ameritrade. “I think that was expected at some point when you had all these elevated commodity prices. It looks like, unfortunately, that’s getting resolved via demand destruction not an improvement in the supply.”

Investors continue to fret over a potential US recession and stubborn inflation despite talks of tariff reductions. US and Chinese officials held discussions after reports that Washington is close to rolling back some of the trade levies imposed by the former administration. Reducing tariffs on imported Chinese goods could impact consumer prices in the US, but some suggest that it would do little to cool inflation. 

Data released Tuesday also showed durable goods orders and factory orders rose more than expected in May.

“What the market is now pricing in is a more broad global slowdown,” Cruz said. 

The odds of a US recession in the next year are now 38 per cent, according to latest forecasts from Bloomberg Economics. Signs of a rapidly deteriorating US economic outlook have spurred bond traders to pencil in a complete policy turnaround by the Federal Reserve in the coming year, with interest-rate cuts in the middle of 2023.

“If the Fed changes course now, they might as well pack their bags and turn the lights off,” Kenneth Polcari, senior market strategist for Slatestone Wealth LLC, wrote in a note. “Yes, the economy is slowing but inflation continues to be an issue and that is the focus now.”

In Australia, the central bank raised its key interest rate as expected to 1.35 per cent. It’s among more than 80 central banks to have raised rates this year. The nation’s dollar weakened after the decision.

In Europe, equities dropped to the lowest since January 2021 ahead of the earnings season, which investors will watch closely to see whether corporate profit growth can handle inflation and supply constraints. 

Bitcoin rose after wavering throughout the session, trading around the US$20,000 level.

What to watch this week:

• FOMC minutes, US PMIs, ISM services, JOLTS job openings, Wednesday
• EIA crude oil inventory report, Thursday
• Fed Governor Christopher Waller, St. Louis Fed President James Bullard, scheduled to speak, Thursday
• ECB account of its June policy meeting, Thursday
• US employment report for June, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.1 per cent as of 3:25 p.m. New York time
• The Nasdaq 100 rose 1.4 per cent
• The Dow Jones Industrial Average fell 0.6 per cent
• The MSCI World index rose 0.3 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 1 per cent
• The euro fell 1.6 per cent to US$1.0258
• The British pound fell 1.4 per cent to US$1.1948
• The Japanese yen fell 0.1 per cent to 135.78 per dollar

Bonds

• The yield on 10-year Treasuries declined six basis points to 2.82 per cent
• Germany’s 10-year yield declined 15 basis points to 1.18 per cent
• Britain’s 10-year yield declined 15 basis points to 2.05 per cent

Commodities

• West Texas Intermediate crude fell 7.9 per cent to US$99.84 a barrel
• Gold futures fell 1.9 per cent to US$1,767.10 an ounce