First published at 4:44 a.m. EST
Stock indices fell in Monday’s trading session as investors try to find ground after panicking last week over the 0.75% rise in interest rates.
The Dow Jones Industrial Average (DJIA) fell 1.1%, while the S&P 500 (SPX) lost 1.02%. Meanwhile, the Nasdaq 100 (NDX) decreased by 0.5%. The real estate sector (XLRE) lagged the session, falling 2.64%. Conversely, the consumer staples sector (XLP) was the session leader, gaining 0.09%.
The moves came after a very buoyant week that ended with losses for all three averages. On Friday, the S&P 500, Dow and Nasdaq 100 were down 1.72%, 1.62% and 1.66%, respectively.
Federal Reserve Chairman Jerome Powell’s comments at the September FOMC meeting made it clear that inflation is too high for the central bank to become accommodative, and that it is almost impossible to control the phenomenon. without an interest rate-induced recession.
The Fed does not plan to reverse its position until the interest rate reaches at least 4.6% (currently the rate is between 3% and 3.25%), which should be reached in 2023. The interest rate is expected to be pulled to 4.4% by the end of 2022.
In the bond market, yields continued to soar, with the two-year Treasury yield at 4.315%. This level has not been seen since 2007. Moreover, the 10-year Treasury yield is also on the rise, as it now hovers around 3.9%. The last time investors saw this level was in 2010.
Compared to Friday, the market is pricing in a higher probability of a Fed Funds rate cut for the end of the year. In fact, market expectations for a rate in the range of 4% to 4.25% rose to 31.4%, up from Friday’s expectation of 25.7%. Additionally, the market now also assigns a probability of 67.3% to a range of 4.25% to 4.5%. For reference, investors had given themselves a 70.6% chance on Friday.
Oil has continued to slide as nervousness over the economic downturn puts pressure on the commodity. WTI crude fell 3.37% to $76.63 at the time of writing.
Meanwhile, Elon Musk is expected to face a pretrial deposition this week regarding his proposed $44 billion acquisition of Twitter in October.
Elsewhere, Chinese automaker Li Auto lowered its outlook for the third quarter, while the CEO of XPeng increased his stake in the company.
Key economic data this week
This week contains some key economic data, including personal consumption expenditure data on Friday, which is considered an important metric for understanding how much consumers are spending. It should be remembered that consumer spending is one of the major parts of the equation when calculating a nation’s gross domestic product. Therefore, this data will give traders an idea of how much growth to expect from the economy.
This week will also see key comments from Fed Chairman Powell, as well as Fed Vice Chairman Lael Brainard, St. Louis Fed President James Bullard, San Francisco Fed President Mary Dandly and of Fed Governor Michelle Bowman at several events.
It is becoming increasingly difficult to time the markets at this time as buyers of the dip also continue to take losses and change their investment strategies. This may allude to the end of the favorite COVID-era trade – the TINA (there is no alt-trade), which has always supported stocks, with bearish buyers stepping in during the worst times and raising the odds. stock market averages.
It is indeed a trying time for investors, and it is wise to keep a long-term view in mind while investing in fundamentally sound stocks that are bound to recover from a downturn.