Stock market: Wall Street collapses, inflation and rising interest rates deter investors

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MARKET OVERVIEW. The New York Stock Exchange ended Monday sharply lower on fears that inflation would urge the US Federal Reserve (Fed) to tighten the screw even further if an economic slowdown or even a recession looms on the horizon.

Consult market news (again).

Stock market indices at close of trading

In Toronto, the S&P/TSX fell 532.26 points (-2.63%) to 19,742.56 points.

In New York, the S&P500 closed 151.23 points (-3.88%) at 3,749.63 points.

the Nasdaq fell 530.80 points (-4.68%) to 10,809.23 points.

the DOW fell 876.05 points (-2.79%) to 30,516.74 points.

the loons fell from $0.0067 (-0.8539%) to $0.7755.

the oil returned $0.21 (+0.17%) to $120.88.

gold closed at $53.20 (-2.84%) at $1,822.30.

the Bitcoin lost $3,901.54 (-14.20%) to $23,583.08.

the context

Already battered on Friday, the New York market was further shaken on Monday, still concerned about the CPI price index, which showed inflation in the United States had picked up steam in May, while many were expecting the start of a slowdown.

“Friday will probably have been a defining moment for the markets,” commented Edward Jones’ Angelo Kourkafas. “The central thesis (of investors) has been invalidated”, showing that inflation has not yet peaked.

As a result, operators have revised their monetary policy forecasts and now estimate that the probability of the Federal Reserve raising interest rates by at least 1.75 percentage points by the end of September, d point.

Such a steep rise would be a first since 1994.

“We expect the Fed to surprise markets by raising rates by 0.75 percentage point as early as June to bolster its credibility and regain control of inflationary pressures,” analysts wrote in a Barclays note on the Fed -Meeting that will take place on Tuesday and Wednesday.

This revision in expectations “has contributed not only to bond volatility, but also to stock volatility,” explained Angelo Kourkafas.

“The fact that headwinds (for the economy) are building as the Fed is forced to hike rates faster has given markets indigestion,” he said.

“Wall Street is facing a plethora of bad news,” commented Oanda’s Edward Moya, “but the problem is that the Fed has the green light to tighten as much as possible and lower inflation until we see a deterioration of credit conditions and the functioning of markets see control”.

Overall, according to Edward Moya, investors are showing “a lack of confidence in valuations, knowing that despite expectations of much slower growth or even a recession in the coming months, there are still few profit warnings.”

General risk aversion

The prospect of interest rate hikes also rocked the bond market, which suffered a massive pullback. The yield on 10-year US Treasury bonds, which moves counter to its price, rose to 3.38% for the first time in more than 11 years.

The yield curve, which connects all bond maturities between short and long interest rates, shifted on Monday, with the 2-year US Treasury yield even briefly rising above 10 years, a sign that is sometimes interpreted as it used to be.

For Angelo Kourkafas, the New York market is showing no signs of capitulation, a term that means the selling trend is no longer facing resistance and the market is nearing a bottom.

Many believe that the VIX index, which measures market volatility, although it rose nearly 25% on Monday, is still a fair distance from levels historically consistent with a market nearing its bottom.

In the stock market, they have very rarely been able to escape the wave that swept away everything in their path, with a particular ferocity for technology, particularly cryptocurrencies and the travel industry.

Among the most affected Amazon (AMZN) (-5.45%), Tesla (TSLA) (-7.10%) and Meta (FB) (-6.44%). Since its record high in early September 2021, the social network has lost 57% of its market cap.

In a climate of general risk aversion, anything directly or indirectly related to cryptocurrencies was avoided like the plague, as evidenced by the platform’s performance. Coin Base (COIN) (-11.41%) or the “mining” specialist (creation of bitcoins) Riot Blockchain (RIOT) (-10.06%).

As the summer season approaches, cruise lines have suffered from fears of an economic slowdown, such as: Norwegian (NCLH) (-12.23%) or Royal Caribbean (RCL) (-9.74%). In their wake, airlines flew very low, iAmerican Airlines (AAL) (-9.45%) at United Airlines (UAL) (-10.06%).

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