Wall Street collapses | VAT News

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.

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The Dow Jones was down 2.79% to 30,517.06, the tech-influenced Nasdaq index fell 4.68% to 10,809.22, while the broader S&P 500 index fell 3.87% to 3,749.91.

The S&P 500, considered Wall Street’s most representative index, has entered a “bear market,” meaning it is down more than 20% since its all-time high in early January (-22% at the close on Monday).

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.”

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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 that connects all bond maturities between short and long yields spiraled out of joint on Monday, with the 2-year US Treasury yield even briefly surpassing the 10-year mark, a sign sometimes seen as before interpreted as recession.

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.

The most affected are 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 cap.

In a climate of general risk aversion, anything directly or indirectly related to cryptocurrencies was avoided like the plague, such as the performance of platform Coinbase (-11.41%) or mining specialist Riot Blockhain (-10.06%).

As the summer season approaches, cruise ship passengers suffer from fears of an economic slowdown, as seen at Norwegian (-12.23%) or Royal Caribbean (-9.74%). In their wake, airlines flew very low, from American Airlines (-9.45%) to United Airlines (-10.06%).

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