December 7, 2023

Wall Street Retreats Amidst Persistent Rate Hike Worries

On Monday, there was a decline in US stocks as they extended losses of the previous week over rising concerns about the US Fed’s determination to increase interest rates aggressively for curbing inflation, even as the economy slows down.

Indexes down

On Friday, Jerome Powell, the US central bank chief said that a tight monetary policy would be needed for a while before inflation comes down.

This torpedoed hopes of the Federal Reserve slowing down its aggressive hiking path after recent data showed that inflation may have reached its peak.

The S&P 500 was able to make its recovery from session lows, which had seen it lose 1%, but the benchmark index recorded its biggest decline in two days that was seen in the last two and a half months.

Market analysts said that the sell-off on Friday was a bit much because Powell had been hawkish for quite a while and he essentially repeated what they had already said before.

They said that they would expect more volatility in the markets, at least until September 21st, when the interest rate hike does come to pass.

There was a 0.57% drop in the Dow Jones Industrial Average, as it came down by 184.41 points to reach 32,098.99. A 0.67% drop in the S&P 500 saw it lose 27.05 points to reach 4,030.61 points.

A 1.02% drop in the Nasdaq Composite took it down by 124.04 points to reach 12,017.67.

Other stocks

There was a 1.37% fall in megacap growth and technology stocks like Apple Inc. and a 1.07% drop was also seen in Microsoft Corp.

These were the biggest drags on the index, while there was a rise in Treasury yields. Known as the fear gauge for Wall Street, the CBOE Volatility Index reached 27.67 points, which is a 7-week high.

There was a 1.54% rise in energy stocks thanks to a 4% jump in crude prices because of possible output cuts by OPEC+ and Libyan conflicts.

A 6.24% fall was also recorded in Bristol Myers Squibb after the company’s drug candidate aimed at preventing ischemia strokes was not able to achieve its goal during the trial.

Rate bets

Money markets have priced in a 72.5% possibility of the Federal Reserve increasing the interest rates by 75 basis points in its September meeting.

This would be the third time for the US central bank to raise interest rates by that magnitude. They believe that the Fed funds rate would finish the year at about 3.7%.

This week, economic data is due on Friday, which will highlight the US payrolls. If the labor market shows any signs of a slowdown, it could take some pressure off the Fed in terms of rate hikes.

There was a brief rise in the 2-year Treasury bond yields that touch a high of 15 years, while the gap between 2-year and 10-year yields remained inverted.

An inversion is often considered a sign of economic recession by many experts and this could be worrisome.

Leave a Reply

Your email address will not be published. Required fields are marked *

Previous post Two Year Weakest Value Recorded for Chinese Yuan Due to Hawkish Fed Signals
Next post Stock Markets Rose After Jobs Report Publication