S&P 500 plunges into the bear market
The US Federal Reserve will take into account the huge increase in interest rates
Due to concerns about interest rates and the recession, US equity markets fell significantly again on Monday. Such concerns could escalate as early as this week, with the US Federal Reserve considering the largest 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 interest rate hike than previously planned. The Wall Street Journal reports that Fed Chairman Jerome Powell’s executives originally prepared another interest rate hike of 0.5 percentage points. Several reports of global price hikes could therefore lead to rethinking and a stronger 0.75 percentage point increase.
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 benchmark interest rate by 0.5 percentage points to the new range of 0.75 to 1.0%. According to the Wall Street Journal, it was last increased by 0.75 points in 1994.
The trigger for the tightening should be the inflation data that the US Department of Labor reported last week. In May, the price level unexpectedly increased by 8.6%, reaching the highest level since December 1981.
JPMorgan thinks the slide is over the top
In consideration of rising interest rates and recession concerns, US stock exchanges fell significantly again this year on Monday. In particular, stocks of tech companies have been under pressure again. The Nasdaq 100 fell 4.60% to 11,288 points, the lowest level since November 2020. The broad-spectrum S&P 500 closed 3.88% lower to 3,749 points, the lowest level since March 2021. All-time high of January 1, this again means a decline of well over 20 percent, which means that the stock market barometer is in a bear market by the usual definition. The leading Dow Jones Industrial Index lost 2.79% to 30,516 points. Sometimes it was at its lowest level since February 2021: the recovery in the second half of May has faded.
There is nervousness, “because in addition to the dynamics of inflation, there are also signs of a decline in consumption. This would hit the economy twice and lead to economic downturns”, commented Andreas Lipkow of Comdirect. Furthermore, the nascent Covid problem in China is making investors nervous. “In New York there is (also) the fear that even large-cap tech stocks such as Tesla and Apple, which technically have not yet formed a turnaround formation,” added the market analyst. Jochen Stanzl from the broker CMC Markets.
On the other hand, the market strategists of the US bank JPMorgan around Marko Kolanovi consider the price drop in recent days to be exaggerated. The significant losses and “sell off” of already more than adequately priced cryptocurrencies in a risk of recession. Experts are counting on a positive surprise from currency watchdogs and a recovery in prices in the second half of the year. This is supported by continued strong consumption, the economy is freed from the restrictions of the corona pandemic and economic stimulus measures in China.
Cryptocurrency companies suffer the most
Among the tech stocks that had been beaten nonetheless, Amazon stood out negatively on Monday with a price loss of nearly five and a half percent. According to a media report, in a conflict with EU competition authorities, the world’s largest online retailer offered to limit the use of vendor data and improve the visibility of competing products on the platform.
Tesla’s shares lost more than 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 Friday after the US market closed that the board would accept a three-to-one split if shareholders approved it at the next annual general meeting. Tesla had already announced in March that it was planning a split. But it was not clear in what proportion. An upgrade from Canadian bank RBC, which now recommends the stock as “Outperform”, also didn’t help the price earlier in the week.
Even worse than Amazon and Tesla were the shares of companies linked to cryptocurrencies, which were also penalized. Shares of the listed cryptocurrency trading platform Coinbase plummeted nearly 11.5%. In Silvergate Capital, a holding company of Silvergate Bank heavily involved in cryptocurrencies, shareholders faced a price loss of nearly 17%. Shares of software maker Microstrategy, which invested reserves in the cryptocurrency Bitcoin, lost a quarter. Shares in Prologis fell 7.5% after the real estate firm said it reached a deal to buy its competitor Duke Realty in a $ 26 billion stock swap transaction, including taking on debt. The Duke stock gained one percent.
The euro continued its descent: in New York trading, the common currency recently dropped to $ 1.0412, thus losing significantly for the third consecutive day. The European Central Bank (ECB) had previously set the reference rate at 1.0455 (Friday: 1.0578) dollars; the dollar therefore cost 0.9565 (0.9454) euros. Meanwhile, interest rates on the US bond market continued to rise sharply. More recently, the yield on government bonds with a ten-year maturity was 3.37 percent, which is the highest level in over eleven years. Conversely, the 10-year Treasury futures contract (T-Note Future) fell 1.43% to 115.14 points.