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Wall Street suffers worst sell-off since June 2020

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US Treasury stocks and bonds continue to sink, leading Wall Street to its worst sell-off since June 2020, when we were at the height of the covid-19 pandemic, due to fears of a stronger Federal Reserve. aggressive if you will according to Kate Duguid, Eric Platt and Ian Johnston in the Financial Times.

Wall Street suffered the worst sell-off since the early days of the pandemic after official data showed US inflation unexpectedly rose in August, raising the specter that the Federal Reserve will need to act more aggressively to combat the price increase.

The benchmark S&P 500 stock index fell 4.3%, its worst day since June 2020 with 99% of its companies losing value. The Nasdaq Composite fell 5.2% as tech groups seen as more exposed to higher rates were hit the hardest by the selloff.

Short-term government bond yields that track interest rate expectations hit their highest level in nearly 15 years as investors raised bets the Fed will have to do more to quell runaway inflation.

Wall Street suffers worst sell-off since June 2020
Wall Street suffers worst sell-off since June 2020

Investors on Tuesday priced in a 1 in 3 chance that the US central bank will raise rates by a full percentage point this month, according to CME Group data, rather than a 0.75 percentage point hike that remains the consensus expectation.

The inflation figures increased the pressure on policymakers at the US central bank, who have vowed to do everything in their power to reduce the price spiral. His apparent determination to deliver on the promise has sparked fears that the economy is headed for a hard landing.

Technology stocks are particularly sensitive to changes in interest rate expectations because valuations are largely based on future growth prospects. Meta, and chipmaker Nvidia were among the biggest losers, both down 9%, while Amazon lost 7%.

The declines shaved $154 billion from Apple’s market valuation and $109 billion from Microsoft, with both companies posting their biggest daily losses since September 2020.

Frenetic selling on Tuesday affected almost every corner of US financial markets. At one point during the trading day, nearly 2,000 stocks listed on the New York Stock Exchange fell in value at the same time, a phenomenon typically seen during times of market stress. Investors scrambled to hedge against further declines by stockpiling stock put option contracts that could pay if the market continues to fall.

The sharp moves were sparked by official figures showing US consumer prices rose 0.1% in August from the previous month, compared with expectations for a 0.1% drop. The annual rate came in at 8.3%, down from 8.5% in July but higher than the 8.1% forecast by Wall Street economists.

Of more concern to Fed policymakers is that growth in core consumer prices, which exclude volatile items like energy and food, rose from 5.9% to 6.3%.

Matt Peron, director of research at Janus Henderson Investors, said the data “was unequivocally negative for equity markets.”

Peron added: “The hotter-than-expected report means we will have continued pressure. . . through rate hikes. It also pushes back any ‘Fed pivot’ that markets were expecting in the near term.”

In the Treasury bond market, the two-year yield, which closely tracks interest rate expectations, rose to its highest level since October 2007, ending the day up 0.18 percentage point at 3.75. %.

“The most dramatic thing … in the Treasury market today was the move in two-year yields,” said Tom di Galoma of Seaport Global Holdings. “This number clearly put on the map that the Fed is going to do a 0.75 percentage point hike and maybe more.”

Following the report, investors in the futures market bet that the Fed’s benchmark interest rate would stand at 4.17% by the end of the year, versus expectations of 3.86% before the report. That implies a 0.75 percentage point increase in September, plus another full percentage point of increases over the course of November and December.


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