The New York Stock Exchange ended sharply lower on Thursday, frightened by the possibility that the forced rally of central banks, led by the Federal Reserve, will take a breather from an economy that is already showing signs of weakness.
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The Dow, which lost nearly 1,000 points in the session, ended 2.42% lower, dropping below 30,000 points for the first time since January 2021, while the Nasdaq fell 4.08% and the broader S&P 500 fell 3.25%.
“It didn’t take long for Wall Street to lose steam since yesterday after (Fed announcements), as other major central banks also got fiercer in their fight against inflation,” Oanda’s Edward Moya explained. .
After the Federal Reserve on Wednesday, the Bank of England also raised its key interest rate on Thursday, but by only 0.25 points, as did the Swiss National Bank, the latter of which completely surprised investors.
explained Maris Ogg, portfolio manager for Tower Bridge Advisors.
“With the Fed’s balance sheet cut (which started in June) and markets anticipating an additional 0.75 percentage point hike at the upcoming Fed meeting,” traders are wondering “if the Fed won’t get lost,” and to advance too fast and too strong in the Monetary policy tightening, commented Quincy Crosby, of LPL Financial.
The surrounding gloom was supported by a series of weak indicators, led by the index of manufacturing activity in the Philadelphia region, which showed a contraction in June (-3.3 points), while economists expected an advance (+4.8 points).
Another cloud that casts a shadow over the US economy’s horizon is the gradual rise in unemployment, as evidenced by the weekly records that exceeded expectations (229,000). For Peter Bokfar, of Bleakley Consulting Group, “The increase in layoffs is watching us, and the question is what will be the pace.”
The last negative sign was the decline in the initial housing stock in the US, which came at a lower level than expected.
The first signs of a slowdown are beginning to appear, “so the question is whether this will affect the pace of inflation,” according to Maris Aug. “Because the Fed is focused on that” more than on economic growth. “And if not, it looks like they won’t stop (in raising interest rates) despite signs of declining consumer confidence” in the economy.
For Maris Ogg, the ongoing global monetary tightening, as well as the exit of some investors out of the market who wish to limit their exposure to risk, is threatening market liquidity, which could increase volatility, or even create more brutal shocks.
Case in point, the 10-year US government bond yield fluctuated by 0.26 percentage point on Thursday, a very unusual volume in a market with usually very calculated moves. It settled at 3.23% versus 3.39% the day before.
On the stock front, tech giants led the decline, from Meta (-0.01%) to Apple (-3.97%), via Microsoft (-2.70%) and Alphabet (-3.40%).
Twitter also closed lower (-1.66% to $37.36), far from the acquisition price suggested by Elon Musk ($54.20), who was vague about his plans for the platform during a staff meeting on Thursday.
As for Tesla, led by the billionaire businessman, it was leaked (-8.54% to $ 639.30), swayed by the announcement of price increases for its models, but also by fears that the Twitter profile would be a distraction.
Among the few that will float, the so-called mainly defensive stocks, that is, the least sensitive to the economic situation, such as Walmart (+ 1.04%), Johnson & Johnson (+ 0.05%) or Procter & Gamble (+ 0.61%).
Revlon cosmetics group was harassed (-13.33% to $1.95) after declaring bankruptcy on Wednesday, which would allow it to be restructured. The company has had a hard time with the pandemic, which has slowed spending on some beauty products.