4.15pm: US markets start the week with losses
US markets started the week on a downward path as investors continue to fret that the Federal Reserve's aggressive campaign against inflation could throw the US economy into a sharp downturn.
At the close the Dow Jones Industrial Average was down 330 points, or 1.11%, at 29,261, the S&P 500 retreated 38 points, or 1.03%, to 3,655, while the Nasdaq Composite also fell, down 65 points, or 0.6%, to 10,803.
"Investors are just throwing in the towel," Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma told Reuters.
"It's the uncertainty about the high-water mark for the Fed funds rate. Is it 4.6%, is it 5%? Is it sometime in 2023?"
Volatile currency markets added to the uncertain mood with the dollar advancing once more against the pound with sterling hitting an all-time low on worries that the new British government's fiscal plan released Friday would stretch the country's finances.
12.05pm: Nasdaq bucks downward trend
The major US indices remained mixed at the noon bell, while commodities like oil and natural gas dropped in price, but US yields rose.
At midday, the Dow Jones Industrial Average was down by 0.6% to 29,417, the S&P 500 was down by 0.5% at 3,675, while the Nasdaq Composite was up by 0.06% at 10,874.
Josh Mahony, senior market analyst at online trading platform IG, said markets are regaining ground, but optimism is in short supply.
“Interestingly, we have seen the tech-focused Nasdaq leading the US gains as investors pile in to growth stocks despite fears around rising rates at the Fed,” Mahony wrote in a note.
He also noted that the US dollar-Great Britain pound experienced the highest one-day volatility since the height of the Covid crisis in March of 2020. The pound fell as much as 4.8% to trade below US$1.04 this morning, and rose to $1.07 by midday.
“The strength of the pound may be a reaction to the anticipated emergency rate hike from the Bank of England, but the risk here is that markets begin to realise the UK’s reserves make defending the pound increasingly difficult,” Mahony wrote.
The major movers included Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands, both up over 13%, on news that Macau authorities said China would resume an e-visa scheme for mainland travellers and permit group tours to the gambling resort city. The US 2-year Treasury reaching a fresh 15-year high, while the benchmark 10-year also rose.
On the downside, Prologis was down by 4.5%, as was Duke Realty. Oil prices were also down, with West Texas intermediate trading below US$79 a barrel, and natural gas was down by 1.5% to $6.75.
9.35am: Economic outlook ‘bleak’ ahead of earnings next month, analyst says
US stocks opened mixed on Monday as the Fed’s aggressive rate hike plan to curb four-decade-high inflation continued to weigh on investor sentiment.
Shortly after the market opened, the Dow Jones Industrial Average had shed 66 points or 0.2% at 29,525 points, the S&P 500 was steady at 3,692 points, and the Nasdaq Composite was up 40 points or 0.4% at 10,905 points.
Ride-share company Lyft Inc (NASDAQ:LYFT) dipped 2.9% after UBS Group research analysts downgraded the stock from a ‘Buy’ rating to ‘Neutral,’ noting that per a recent survey that both drivers and consumers preferred to use competitor Uber Technologies Inc (NYSE:UBER).
Meme stock Bed Bath and Beyond Inc was up 2.3% at the open ahead of the embattled company’s quarterly results due Thursday.
In a note, Forex.com market analyst Joshua Warner wrote that it was the market’s belief that the Fed would continue to aggressively hike interest rates into 2024 amid slower growth, higher unemployment, and higher inflation than previously anticipated.
“The gloomy economic outlook looks set to continue weighing on equities this week and paints a bleak picture as we approach earnings season next month,” he wrote.
6.30am More falls
US stocks are expected to open lower as worries of prolonged recession grip markets.
Sharp currency market fluctuations are also adding to market fears, as the US dollar surges against the likes of the pound and euro.
Futures for the Dow Jones Industrial Average were down 0.8% in pre-market trading, while those for the S&P 500 lost 0.8%, and contracts for the Nasdaq-100 were 0.6% lower.
The dust has yet to settle on the Federal Reserve’s third 75 basis point interest rate hike last week and markets are contending with the prospect of a tough recession. Investors are spooked and show little appetite for risk.
The result has been lower stock prices, especially as the Federal Reserve underlined its commitment to keep hiking interest rates last week as it attempts to tame inflation, which remains close to 40-year highs.
On Friday, the S&P 500 lost 1.7%, the Nasdaq sank 1.8%, and the Dow fell 1.6% to reach 29,590 points—a new low for 2022.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, noted that the “extremely chaotic note” on currency markets is not helping.
“Both the pound and the euro are being severely punished for the political decisions that are taken in the UK and in Italy, respectively,” she said.
“The EUR/USD has been shattered this morning. The pair dived to 0.9550, and will certainly remain under pressure as the Italian yields will likely detach from the rest of the euro zone and run toward the north. The wider yield spread between Italian and German bonds will likely continue to pressure the euro lower,” she said.
In Italy, far-right leader Giorgia Meloni claimed victory in the country’s election over the weekend.
“The biggest concern for investors regarding Meloni, is whether the new far-right Italian government would deviate from the reforms that Draghi put in place,” noted Ozkardeskaya.
The pound, meanwhile, slumped to historic lows against the dollar after the government’s mini-budget last week promised hefty tax cuts.
“Investors really hated the ‘mini budget’ announced in UK last Friday. Investors were expecting to hear about a huge spending package from the Liz Truss government, but the package has been even 'huger' than the market expectations,” added Ozkardeskaya.
On the data front, the focus will be on US personal consumption expenditures due on Friday.
Contact the author at jon.hopkins@proactiveinvestors.com