Falling on Wall Avenue, inflation and rising charges scare traders

The Dow Jones lost 2.79% to 30,517.06 points, the technologically influenced NASDAQ index fell 4.68% to 10,809.22 points, while the broader S&P 500 fell 3.87% to 3,749.91 points.

The S&P 500, considered the most representative Wall Street index, has entered the “bear market” (bear marketin English), meaning it lost more than 20% of its record high in early January (-22% at Monday’s close).

This shock was also felt on the Toronto Stock Exchange, which experienced its second worst day of the year. The S&P / TSX index weakened 532.26 points and ended the session at 19,742.56 points.

A turning point for markets?

As early as Friday, the New York market was further shaken on Monday, still worried about the consumer price index, which showed that inflation in the United States accelerated again in May, while many were waiting for the beginning of the slowdown.

Friday is likely to be a key moment for the marketscommented Angelo Kourkafas, Edward Jones. Central thesis [des investisseurs] was canceledwhich shows that inflation has not yet peaked.

As a result, operators have revised their monetary policy projections and now estimate that the Federal Reserve is likely to increase rates by at least 1.75 percentage points by the end of September close to 80%, or two half-point increases and another 0.75 increase points.

Such a sharp rise would be the first since 1994.

U.S. Federal Reserve Chairman Jerome Powell

Photo: Associated Press / Evan Vucci

We expect the Fed to surprise markets by raising interest rates by 0.75 percentage points in June to strengthen their credibility and restore an advantage over inflationary pressuresBarclays analysts wrote in a note on the Fed meeting Tuesday and Wednesday.

This revision of expectations contributed not only to bond volatility but also to stock volatilityexplained Angelo Kourkafas.

According to him, the fact that the headwinds are rising [pour l’économie] as the Fed is forced to raise rates at a faster pace has caused indigestion in the markets.

Wall Street is facing a lot of bad newsabounded, in a note, by Edward Moya, of Oanda, but the problem is that, until we see deteriorating credit conditions and market functioning, the Fed has the green light to tighten as much as possible and bring inflation under control.

All in all, investors are showing lack of confidence in estimates, knowing that earnings warnings are still few despite expectations of much slower growth or even a recession in the coming monthsaccording to Edward Moya.

The rates could be reversed

The prospect of rising interest rates has also pushed the bond market, which has suffered a massive pullback. Yields on 10-year U.S. government bonds, which are moving in the opposite direction from their price, jumped 3.38%, the first time in more than 11 years.

The yield curve, which links all bond maturities between short and long rates, was shifted on Monday, with yields on U.S. Treasury bonds even briefly past 10 years, a sign sometimes interpreted as a sign of recession.

According to Angela Kourkafas, the New York market is not showing signs of capitulation, which is a term used to mean that the sales trend is no longer in opposition and that the market is approaching the bottom.

Many believe the VIX index, which measures market volatility, although it jumped nearly 25% on Monday, is still a good distance from levels historically corresponding to a market near the bottom.

Abandoned Cryptos

The stock market has very rarely escaped the wave that has taken everything in its path, with particular fervor towards technology, especially cryptocurrencies and the travel industry.

Among the most endangered are Amazon (-5.45%), Tesla (-7.10%) and Meta (-6.44%). Since its record level in early September 2021, the social network has lost 57% of its market capitalization.

In a climate of general risk aversion, anything directly or indirectly related to cryptocurrencies has been avoided like the plague, as evidenced by the performance of the Coinbase platform (-11.41%) or bitcoin mining specialist Riot Blockhain (-10, 06%).

As the summer season approaches, cruise passengers have suffered from fears of economic slowdown, such as Norwegian (-12.23%) or Royal Caribbean (-9.74%). After them, airlines flew very low, from American Airlines (-9.45%) to United Airlines (-10.06%).

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