On the 21st (local time), all three major indices on the New York Stock Exchange plummeted around 2% due to the spread of concerns about high-intensity tightening from the US Federal Reserve System (Fed). This is the worst drop in over two months. U.S. Treasury yields also jumped sharply, reflecting fears of Fed tightening.
On this day, on the New York Stock Exchange (NYSE), the Dow Jones 30 Industrial Average closed at 33,129.59, down 2.06%, down nearly 700 points from the battlefield. According to CNBC, this is the largest drop since December 15 last year. The Standard & Poor’s (S&P) 500 index, centered on large caps, closed at 3997.34, down 81.75 points (2.0%), and the Nasdaq index, centered on technology stocks, closed at 11,492.30, down 294.97 points (2.50%). About 90% of companies included in the S&P 500 index all fell.
The market crash on this day, which opened four days after the US holiday ‘President’s Day’, seems to be because fears of interest rate hikes from the Fed are suppressing the market again. In January, the consumer price index (CPI) rose 0.5 percent from the previous month, while the producer price index (PPI) rose 0.7 percent, the highest since June last year. Producer prices are a leading indicator of consumer prices, so the market’s inflationary concerns are growing.
In particular, the US economy is showing a solid recovery trend in all aspects of employment, production and consumption. The February non-manufacturing (service) Purchasing Managers’ Index (PMI) released by S&P Global on this day showed 50.5, the highest in the last eight months. A PMI greater than 50 indicates economic expansion. It is likely that the Fed will insist on high-intensity tightening to curb inflation.
According to the Chicago Mercantile Exchange’s ‘PedWatch’, market investors see a 75.3% chance that the Fed will raise its interest rate by 0.25 percentage point three times in a row until June and raise the US benchmark interest rate above 5.25-5.50%. As a result, the two-year US Treasury yield, which is sensitive to the Fed rate, jumped more than 4.7%, and the market benchmark rate, the 10-year yield, jumped more than 3.9% and is approaching 4%.
“Strong employment and resilient consumer demand could spur the Fed to raise interest rates through the summer,” Jeffrey Roach, chief economist at LPL Financial, told Bloomberg. Eric Johnston, an analyst at Cantor Fitzgerald, said, “I can no longer agree that the United States will reach a soft landing or a ‘no landing’ of continuing growth. “We still have to worry about a recession,” he said.
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Source: Donga