Wall Street Crashes, Inflation and Rising Rates Scare Off Investors

Wall Street Crashes, Inflation and Rising Rates Scare Off Investors

The Dow Jones lost 2.79% to 30,517.06 points, the tech-influenced NASDAQ index fell 4.68% to 10,809.22 points, while the broader S&P 500 index fell 3.87% to 3,749. .91 points.

The S&P 500, considered the most representative index on Wall Street, has entered a “bear market” (bear marketin English), which means that it has lost more than 20% since its all-time high in early January (-22% at the close of Monday).

This 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 close the session at 19,742.56 points.

A turning point for the markets?

Already battered on Friday, the New York market shuddered further on Monday, still worried about the consumer price index, which showed that inflation had accelerated again in May in the United States, while many expected the start of a slowdown. .

Friday will likely have been a pivotal moment for the markets.commented Angelo Kourkafas of Edward Jones. the core thesis [des investisseurs] has been invalidatedwhich shows that inflation had not yet peaked.

Consequently, traders have revised their monetary policy projections and now estimate that the probability that the Federal Reserve will raise its rates by at least 1.75 percentage points at the end of September is close to 80%, that is, two increases of half a point and another 0.75 point.

Such a steep increase would be the first since 1994.

Jerome Powell, Chairman of the US Federal Reserve.

Photo: Associated Press/Evan Vucci

percentage point rates starting in June to bolster its credibility and regain the upper hand over inflationary pressures”,”text”:”We expect the Fed to surprise markets by raising rates by 0.75 percentage points starting in June to strengthen its credibility and regain the advantage over inflationary pressures”}}”>We expect the Fed to surprise markets by raising rates by 0.75 percentage point in June to boost its credibility and regain control over inflationary pressures.Barclays analysts wrote in a note on the Fed meeting on Tuesday and Wednesday.

This revision of expectations contributed not only to bond volatility, but to equity volatility as wellAngelo Kourkafas explained.

According to him, the fact that the headwinds are increasing [pour l’économie] as the Fed is forced to raise rates at a faster pace has caused indigestion in the markets.

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

In general, investors show a lack of confidence in valuations, knowing earnings warnings are still few despite expectations of much slower growth or even a recession in the coming monthsaccording to Eduardo Moya.

Rates could be reversed

The prospect of a rise in interest rates also rattled the bond market, which suffered a massive disconnect. The yield on 10-year US government bonds, which move in the opposite direction of their price, soared to 3.38% for the first time in more than 11 years.

The yield curve, which links all bond maturities between short and long rates, shifted Monday, with the 2-year US Treasury yield even briefly passing above 10-years, a signal that is sometimes interpreted as a harbinger of a recession.

According to Angelo Kourkafas, the New York market shows no signs of capitulation, a term used to indicate that the selling trend is no longer opposed and that the market is approaching a bottom.

Many believe that the VIX index, which measures market volatility, although it jumped almost 25% on Monday, is still a good distance from the levels that historically correspond to a market approaching its bottom.

abandoned crypto

In the stock market, very few escaped the wave that swept away everything in its path, with a particular ferocity for technology, cryptocurrencies in particular, and the travel industry.

Among the most affected, Amazon (-5.45%), Tesla (-7.10%) and Meta (-6.44%). Since its all-time 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 related to cryptocurrencies was shunned like the plague, as evidenced by the performance of the Coinbase platform (-11.41%) or the specialist in “mining” (creation of bitcoins ) Riot Blockchain (-10.06%).

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

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