The New York Stock Exchange ended sharply lower on Monday, fearing that inflation would push the American Federal Reserve (Fed) to tighten the screw further as the economic slowdown or even the recession heralds the peak. view.
The Dow Jones lost 2.79% to 30,517.06 points, the tech-influenced Nasdaq index dropped 4.68% to 10,809.22 points, while the broader S&P 500 index dropped 3, 87% to 3749.91 points.
The S&P 500, considered Wall Street’s most representative index, has entered a “bear market” (bear marketin English), which means it has lost more than 20% since its historic peak in early January (-22% at close on Monday).
A turning point for the markets?
Battered on Friday, the New York market was further shaken on Monday, still worried about the consumer price index, which showed that inflation rose at a pace again in May in the United States, while many waited for initiation of a deceleration.
Friday is probably an important moment for the marketscommented by Angelo Kourkafas, of Edward Jones. The central thesis [des investisseurs] is invalidatedshowing that inflation has not yet risen.
As a result, operators have revised their monetary policy projections and now estimate that there is almost an 80% probability that the Federal Reserve will raise its rates by at least 1.75 percentage points by the end of September, i.e. say, two increases of one half point and another 0.75 points.
Such a steep increase would be the first since 1994.
We expect the Fed to surprise the markets by raising rates by 0.75 percentage point in June to strengthen their credibility and regain the high hand on inflationary pressures.Barclays analysts wrote in a note about the Fed meeting on Tuesday and Wednesday.
This change of expectations contributed not only to the volatility of bonds, but also to equitiesexplanation by Angelo Kourkafas.
According to him, the fact that headwinds are rising [pour l’économie] because the Fed was forced to raise rates at a faster pace caused indigestion for the markets.
Wall Street is faced with so much bad newsabundant, on a note, Edward Moya, of Oanda, but the problem is that as long as we don’t see deterioration in credit conditions and market functioning, the Fed has the green light to tighten as much as possible and control inflation..
In general, investors show lack of confidence in estimates, knowing that earnings warnings are still few despite expectations of slower growth or even recession in the coming monthsaccording to Edward Moya.
Rates can be reversed
The prospect of rising interest rates has also crowded the bond market, which has suffered massive layoffs. Yield on 10-year U.S. government bonds, which are moving in the opposite direction in their price, rose 3.38%, the first in more than 11 years.
The yield curve, which links all bond maturities between the short and long rates, was dislocated on Monday, with the yield on the 2-year U.S. Treasury bond even briefly exceeding the 10-year mark, a signal that is sometimes interpreted as before. -runner of a recession.
For Angelo Kourkafas, the New York market is showing no signs of giving up, a term used to mean that the selling trend is no longer meeting opposition and that the market is approaching a floor.
Many believe that the VIX index, which measures market volatility, although it jumped nearly 25% on Monday, is still a good distance from levels that historically correspond to a market approaching its bottom.
Abandoned Cryptos
On the stock exchange, it’s very rare to escape the wave that has swept everything in its path, with particular ferocity for technology, cryptocurrencies in particular, and the travel industry.
Among those most affected, Amazon (-5.45%), Tesla (-7.10%) and Meta (-6.44%). Since its record high in early September 2021, the social network has lost 57% of its market capitalization.
In a climate of general risk aversion, everything directly or indirectly associated with cryptocurrencies is avoided like the plague, as evidenced by the performance of the Coinbase platform (-11.41%) or the “mining” specialist (creation of bitcoin) Riot Blockhain (-10.06%).
As the summer season approaches, cruise passengers have experienced fears of an economic slowdown, such as Norwegian (-12.23%) or Royal Caribbean (-9.74%). In their case, airlines flew very low, from American Airlines (-9.45%) to United Airlines (-10.06%).
Source: Radio-Canada
