Stocks fell in the final stretch of Tuesday's session, while bonds recovered earlier losses, as investors completed a brutal month for both assets with low-conviction moves.
The S&P 500 fell 2.6% in February. The Nasdaq 100 also failed to avoid a monthly decline. In February, the dollar index rose the most since September. For the month, the yield on two-year treasuries increased by more than ten basis points. Meanwhile, the benchmark 10-year rate increased by more than 40 basis points in February.
Bonds in Europe fell on Tuesday as well, following a reassessment of rate expectations caused by hot inflation data, continuing a theme that has dominated trading in a month that saw the Federal Reserve signal its intention to raise rates higher than the market had anticipated.
In February, investors grappled with the realization that inflation isn't cooling to the extent that the Fed would like to see, especially as key indicators monitored by the central bank came in hotter than expected. That dampened some of the enthusiasm that had propelled stocks higher in January.
Bond traders no longer believe the chances of a Fed rate cut this year are better than ever, a change from what they expected just a month ago. Rates are now expected to peak at 5.4% this year, up from around 5% just a month ago. The European Central Bank is also expected to raise rates until February 2024, with a 4% ECB terminal rate fully priced.