Wall Street slump, inflation and rising interest rates deter investors

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” (bear marketin English), meaning it is down more than 20% since its all-time high in early January (-22% at Monday’s close).

That shock was also felt on the Toronto Stock Exchange, which experienced its second-worst day of the year. The S&P/TSX index fell 532.26 points to end the session at 19,742.56 points.

A turning point for the markets?

Already battered on Friday, the New York market was further shaken on Monday, still concerned about the CPI, which showed inflation in the United States had picked up steam in May while many waited for a slowdown to begin.

Friday will likely have been a pivotal moment for the marketscommented Angelo Kourkafas of Edward Jones. The central thesis [des investisseurs] was declared invalidshowing that inflation had 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 is close to 80%, ie two half-point hikes and another 0. 75 points.

Such a steep increase would be the first since 1994.

US Federal Reserve Chairman Jerome Powell

Photo: Associated Press/Evan Vucci

point de pourcentage ses taux dès juin pour renforcer leur crédibilité et reprendre l’ascendant sur les pressions inflationnistes”,”text”:”Nous nous attendons à ce que la Fed surprenne les marchés en remontant de 0,75point de pourcentage ses taux dès juin pour renforcer leur crédibilité et reprendre l’ascendant sur les pressions inflationnistes”}}”>We expect the Fed to surprise markets by raising interest rates by 0.75 percentage point in June to bolster its credibility and regain the upper hand over inflationary pressuresBarclays analysts wrote in a note about the Fed’s Tuesday and Wednesday meetings.

This revision of expectations contributed not only to the volatility of bonds but also of stocksexplained Angelo Kourkafas.

according to him the fact that the headwind is increasing [pour l’économie] As the Fed is forced to raise rates faster, it has indigestion in the markets.

Wall Street faces a plethora of bad newsabounded in a note, Edward Moya, from Oanda, But the problem is that as long as we don’t see a deterioration in credit conditions and market functioning, the Fed has the green light to tighten as much as possible and get inflation under control.

Overall, investors show lack of confidence in valuations, knowing that profit warnings are still few despite expectations of much slower growth or even recession in the coming monthsafter Edward Moya.

Courses could reverse

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 rates, shifted on Monday, with the yield on 2-year US Treasury bonds even briefly rising above 10 years, a sign sometimes interpreted as a harbinger of a recession .

According to 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 approaching 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.

Abandoned cryptos

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 passengers are suffering 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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