Dow drops 300 points, bond yields rise as investors bet on further rate hikes

Topline

Stocks fell for a third straight day on Tuesday as the recent summer market rally continues to falter as investors grow increasingly nervous over further large interest rate hikes from the Federal Reserve. , which signaled last week that it would continue to tighten monetary policy for “some time” in a bid to reduce inflation.

Highlights

The Dow Jones Industrial Average fell 1%, more than 300 points, while the S&P 500 lost 1.1% and the tech-heavy Nasdaq Composite lost 1.1%.

Stocks have fallen since Fed Chairman Jerome Powell’s Jackson Hole speech last Friday, in which he promised the central bank would continue to aggressively raise rates “higher for longer” until the inflation drops significantly.

Markets were hit again on Tuesday after another central bank official warned that interest rate hikes would continue into next year: New York Fed President John Williams, called for a “more restrictive policy to slow down demand”, adding: “we are still quite a long way from there.

Investors shouldn’t seek “market salvation” from a Fed pivot anytime soon and “should expect the market regime of high volatility and range-bound trading to persist for a while.” some time,” writes Jason Draho, head of Americas asset allocation at UBS Global. Wealth management.

Yields on government bonds also continued to climb as investors bet on further rate hikes, with the yield on the 2-year Treasury note hitting 3.46%, its highest level in nearly 15 years.

Energy stocks, meanwhile, led the market decline on Tuesday as oil prices fell more than 5% – their biggest drop in nearly a month, the US benchmark West Texas Intermediate and the international benchmark Brent is now trading at $92 and $99 per barrel, respectively.

Crucial quote:

Stocks are under heavy selling pressure “as buyers stay on the sidelines” after aggressive selling action last Friday, Vital Knowledge founder Adam Crisafulli points out. “After warning markets that the labor market is still too hot,” July’s large number of 11.2 million job openings “isn’t going to make the Fed happy.”

To monitor :

Markets are widely pricing in a third consecutive rate hike of 75 basis points at the Fed’s next monetary policy meeting in September, following similar hikes in June and July. Investors appear to be adjusting to the new reality of further rate hikes for a longer period – and with a long way to go before a potential monetary policy pivot, experts warn that recession risks are rising and there is there is “little room” left for a soft landing. “Over the next few months, if the labor market does not break down and the consumer remains resilient, Wall Street may start to price in rate hikes for February and March,” predicted Edward Moya, senior market analyst at Oanda.

Further reading:

Market experts predict further volatility as Fed rate hikes leave “little room” for a soft landing (Forbes)

Stock market selloff continues as investors worry about rising interest rates (Forbes)

Netflix is ​​now the worst performing stock in the S&P 500, with stocks plunging more than 60% in 2022 (Forbes)

Dow falls more than 600 points as experts warn bear market rally is coming to a halt (Forbes)