S&P 500 plunges into bear market
US Federal Reserve to consider huge hike in interest rates
06/14/2022, 08:37 am
Due to interest rate and recession worries, the US stock markets dropped again significantly on Monday. Those worries could intensify as early as this week, with the US Federal Reserve reportedly considering the biggest rate hike since 1994. Some financial market analysts are still optimistic.
In view of the unexpectedly high inflation, the US Federal Reserve should consider a larger hike in interest rates than previously planned. The Wall Street Journal reports that those responsible for Fed Chair Jerome Powell had originally prepared another interest rate hike of 0.5 percentage points. Several reports of global price increases could therefore lead to a rethink and a stronger increase of 0.75 percentage points.
The big rate hike could come as early as Wednesday when the Fed discusses its monetary policy again. At their last meeting in May, they already had the biggest raise announced for 22 years and raised the key interest rate by 0.5 percentage points to the new range of 0.75 to 1.0 percent. According to the Wall Street Journal, it was last increased by 0.75 points in 1994.
The trigger for the tightening should be inflation data that the US Department of Labor reported last week. In May, the price level unexpectedly rose by 8.6 percent, reaching its highest level since December 1981.
JPMorgan believes the kurschievous trend is overdone
In view of the increasing interest rate and recession worries, the US stock exchanges fell again significantly this year on Monday. Shares in technology companies in particular were once again under pressure. The Nasdaq 100 fell 4.60 percent to 11,288 points, its lowest level since November 2020. The broad-based S&P 500 closed down 3.88 percent at 3,749 points, its lowest level since March 2021. Compared to the record high of From January 1st, this also means a decline of well over 20 percent, which means that the stock market barometer is in a bear market according to the usual definition. The leading index Dow Jones Industrial lost 2.79 percent to 30,516 points. At times it was at its lowest level since February 2021 – the recovery in the second half of May fizzled out.
There is nervousness, “because in addition to the inflation dynamic, there are also signs of a decline in consumption. That would hit the economy twice and lead to economic downturns,” commented Andreas Lipkow from the Comdirect. In addition, the burgeoning Covid issue in China is getting on nerves of investors. “In New York there is (also) the fear that large-cap technology stocks such as Tesla and Apple, which from a technical point of view have not yet formed a trend reversal formation, will also turn around,” added market analyst Jochen Stanzl from broker CMC Markets.
On the other hand, the market strategists at the US bank JPMorgan around Marko Kolanovi consider the price slide of the past few days to be exaggerated. The significant losses and the “sell-off” in cryptocurrencies already more than adequately priced in a recession risk. The experts are counting on a positive surprise from the currency watchdogs and a price recovery in the second half of the year. This is supported by continued strong consumption, the economy being freed from the restrictions of the corona pandemic and economic stimulus measures in China.
Crypto companies suffer the most
Among the technology stocks that had been beaten anyway, Amazon stood out negatively on Monday with a price loss of almost five and a half percent. According to a media report, in a conflict with the EU competition authorities, the world’s largest online retailer has offered to limit the use of seller data and improve the visibility of competitors’ products on the platform.
Tesla shares lost over seven percent, although another large US company, the electric car maker, announced a stock split to make its shares cheaper for small investors. Tech billionaire Elon Musk’s company announced on Friday after the US market closed that the board of directors would agree to a three-to-one split if shareholders approved it at the upcoming annual general meeting. Tesla had already announced in March that it was planning a split. But it was unclear in what proportion. Even an upgrade by the Canadian bank RBC, which now recommends the share as “Outperform”, did not help the price at the beginning of the week.
Even worse than Amazon and Tesla were the shares of companies related to cryptocurrencies, which were also penalized. Shares in listed cryptocurrency trading platform Coinbase plummeted nearly 11.5 percent. At Silvergate Capital – a holding company of Silvergate Bank that is heavily involved in cryptocurrencies – the shareholders had to cope with a price loss of almost 17 percent. The shares of the software manufacturer Microstrategy, which has invested reserves in the cryptocurrency Bitcoin, lost a quarter. Shares in Prologis fell 7.5 percent after the real estate company said it had agreed to buy its competitor Duke Realty in a share swap deal including debt assumption of around $26 billion. The Duke stock gained one percent.
The euro continued its descent: In New York trading, the common currency recently fell to 1.0412 dollars and thus lost significantly for the third day in a row. The European Central Bank (ECB) had previously set the reference rate at 1.0455 (Friday: 1.0578) dollars; the dollar had thus cost 0.9565 (0.9454) euros. Meanwhile, interest rates on the US bond market continued to rise sharply. Most recently, the yield on government bonds with a term of ten years was 3.37 percent, which means the highest level in over eleven years. In contrast, the futures contract for ten-year Treasuries (T-Note Future) fell by 1.43 percent to 115.14 points.