Energy prices closed sharply lower as traders worried about a possible recession. Treasury yields, which affect mortgage and other types of debt rates, are at multi-year highs.
European stocks fell as fast or more after preliminary data showed that business activity was the worst monthly contraction since the start of 2021. Adding to the pressure was a new plan announced in London. To reduce taxeswhich raised UK yields as it could eventually force its central bank to raise rates even faster.
gave Federal Reserve And Other central banks Interest rates were raised aggressively this week around the world in hopes of taming high inflation, with the promise of bigger hikes ahead. But such moves also put the brakes on their economies, risking recession as global growth slows. In addition to Friday’s disappointing data on European business activity, a separate report suggested that U.S. activity was also still contracting, though not as badly as in earlier months.
“Financial markets are now fully absorbing the Fed’s strong message that it will not back down from its fight against inflation,” Douglas Porter, chief economist at BMO Capital Markets, wrote in a research report.
U.S. crude oil prices fell as much as 5.7 percent to their lowest level since early this year, on fears that a weak global economy will burn less fuel. Cryptocurrency prices also fell sharply as higher interest rates hurt investments that are seen as the most valuable or riskiest.
Gold even fell globally, as high-yielding bonds made investments that paid no interest look less attractive. during this, The US dollar is going up fast. against other currencies. That could hurt the profits of American companies with many overseas businesses, as well as put financial pressure on much of the developing world.
The S&P 500 fell 64.76 points to 3,693.23, its fourth straight decline. The Dow, which was down more than 800 points at one point, closed down 486.27 points at 29,590.41. The Nasdaq fell 198.88 points to 10,867.93.
Smaller company stocks did even worse. The Russell 2000 closed down 42.72 points, or 2.5 percent, at 1,679.59.
More than 85 percent of stocks in the S&P 500 closed in the red, with technology companies, retailers and banks among the biggest weights on the benchmark index.
The Federal Reserve on Wednesday lifted its benchmark rate, which affects many consumer and business loans, to a range of 3 percent to 3.25 percent. At the beginning of the year, it was virtually at zero. The Fed also released a forecast that suggested its benchmark rate could be 4.4 percent by the end of the year, a full point higher than it had envisioned in June.
Treasury yields have risen to multi-year highs as interest rates rise. The yield on the 2-year Treasury, which tracks expectations of Federal Reserve action, rose to 4.20 percent from 4.12 percent late Thursday. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.69 percent from 3.71 percent.
Goldman Sachs strategists say the majority of their clients now see a “hard landing” that inevitably takes the economy down sharply. For them, the only question is the timing, intensity and length of a potential recession.
High interest rates hurt all types of investments, but stocks can hold up as long as corporate profits grow strongly. The problem is that many analysts are starting to cut their forecasts for future earnings due to concerns about higher rates and a possible recession.
“Increasingly, market psychology has shifted from concerns about inflation to concerns that, at the very least, corporate profits will decline as economic growth slows demand,” said Quincy Crosby, LPL. Chief Global Strategist of Financial.
In the US, the jobs market has been remarkably stable, and many analysts believe the economy picked up in the summer quarter after contracting in the first six months of the year. But encouraging signs also suggest the Fed may have to raise rates even higher to achieve the cooling needed to lower inflation.
Some key sectors of the economy are already weakening. Mortgage rates hit a 14-year high.Due to which the sales of existing homes decreased by 20% in the last year. But other sectors that perform best when prices are low are also hurting.
In Europe, meanwhile, an already weak economy is dealing with the effects of war on its eastern front following Russia’s invasion of Ukraine. The European Central Bank is raising its key interest rate to combat inflation even as the region’s economy is already expected to sink into recession. And in Asia, China’s economy is still struggling with tough measures aimed at limiting Covid infections that have also hurt business.
While Friday’s economic reports were discouraging, few on Wall Street saw them as enough to prompt the Fed and other central banks to soften their stance on raising rates. So they only fueled fears that rates would continue to rise against already sluggish economies.
#Dow #hits #lows #markets #sell #recession #fears