Dow tumbles 400 points, S&P 500 sheds 1.6%, as investors question Fed pivot thesis

US stocks were sliding on Monday on fears that the recent rally was based on an overly optimistic outlook about the Federal Reserve’s ability to move away from using increasingly higher interest rates to fight inflation.

How are you doing stock trading?
  • s&p 500 spx,
    -1.57%
    fell 67 points, or 1.6%, to 4,161. Feather

  • Dow Jones Industrial Average DJIA,
    -1.31%
    33,268, down 438 points or 1.3%

  • Nasdaq Composite Comp,
    -1.92%
    260 points or 2.1% down to 12,442 . Feather

On Friday, the Dow Jones Industrial Average fell 292 points, or 0.86%, to 33,707, the S&P 500 fell 55 points, or 1.29%, to 4,228, and the Nasdaq Composite fell 260 points, or 2.01%, to 12,705. The Nasdaq Composite is up 19.3% from its mid-June low, but is down 18.8% so far this year.

What is driving the market?

Wall Street was certainly in for a big drop as investors expressed warnings on a range of monetary, technical and seasonal factors.

The benchmark S&P 500 had rallied sharply from its mid-June lows, partly on hopes that signs of extreme inflation could prompt the Fed to slow the pace of interest rate hikes and even lead to a recovery next year. Dovish will allow the trajectory to move.

However, that notion was challenged last week by a succession of Fed officials, who warned traders about adopting a less harsh monetary policy narrative. Central bankers will gather this week at their annual retreat in Jackson Hole, Wyoming, and Federal Reserve Chairman Jerome Powell is expected to deliver a much-anticipated speech on the economic outlook.

“Hawkish logic will prove convincing for Powell and the broader committee. However, Powell’s sharp guidance at this week’s meeting could limit the range of guidance,” Citigroup analysts said. Chief US economist Andrew Hollenhorst. “Potentially moderate-hawkish consequences would include clarifying to Chair Powell that while policy rates are in the range of ‘long-term’ neutral, appropriate settings are now higher given above-target inflation or that Powell merely indicates that Policy should be expected to continue tightening until there are more concrete signs that inflation is returning to target.”

Analysts said, “We do not expect clear guidance on the size of the September policy rate hike, but we do see the potential for a 75bp hike at the meeting, even as used car prices re-maintain in the August report.” weighs on inflation,” analysts said. In a client note on Monday.

See: Here are 5 reasons why the stock rally could turn into a bear market again

Falling bond yields this summer helped equities in their recent rally. But after falling below 2.6% in early August, the 10-year yield TMUBMUSD10Y,
3.025%
Closer to 3% again.

Another issue that worries bulls is the S&P 500’s failure to break above a key technical level, leaving the market fearing a downside. According to Dow Jones market data, the large-cap index is on pace to lose 1% or more for the second time in a row, its longest streak since the 4 trading days ended June 13.

Source: Guggenheim

“The stock has seen a strong rally since the Federal Open Market Committee meeting in mid-June, but the S&P 500 struggled to close above its 200-day moving average,” Guggenheim analysts said in a note. Is.” “Based on the history of past bear markets, this level (currently 4,320) is an important one to watch. Failure to break the 200-day moving average could indicate a lot of losses for the equities in the coming months.

See: Once Offering the Worst Return on Wall Street, Cash Is Now Looking Like the Best Asset to Own, Morgan Stanley Says

Dollar Index DXY,
+0.81%
is back to a 20-year high as concerns about the European economy drag the euro EUR/USD amid rising energy prices
-1.01%
For analogy with a deer. A stronger dollar is associated with weaker stocks, as it reduces the foreign earnings of US multinationals in US dollar terms.

Still, equity analyst Lori Calvasina at RBC Capital Markets said that some investors thought “the summer rally in the S&P 500 has made stocks expensive again” but she was more optimistic about the market’s prospects.

“The S&P 500 P/E bottom-up has moved slightly above average on consensus EPS forecasts, and looks even more advanced on our own EPS forecasts at $214 (2022) and $212 (2023),” she said. “But even when we substitute for P/E calculations in our own EPS considerations, it’s worth noting that the multipliers are still well below some of the previous key peaks. In our minds, while It is worrying, it is not enough to call the imminent end of the summer rebound.”

Which companies were in focus?
  • shares of AMC Entertainment Holdings
    AMC,
    +2.94%
    Were in focus on Monday as the company’s new preferred stock category under the ticker ‘APE’ is set to commence trading.

  • indicate health
    SGFY,
    +33.07%
    a . Shares rose 34% after Wall Street Journal report Having said that, Amazon is among several companies bidding for the home-health-services provider. According to the Wall Street Journal, the healthcare company is up for sale at an auction that could be valued at more than $8 billion.

  • Travel stocks declined with cruise line stocks like Carnival Corporation
    undefined,
    Royal Caribbean Group
    RCL,
    -3.30%
    And Norwegian Cruise Line Holdings
    NCLH,
    -2.96%
    A drop of about 3%.

How are the other properties doing?
  • 10 Year Treasury Yield TMUBMUSD10Y,
    3.025%
    3% topper.

  • The overall risk-off tone in the market is affecting most asset classes. Oil Futures CL.1,
    -0.85%
    US crude fell 2% to $89.01 a barrel.

  • gold futures GCZ22,
    -0.81%

    GC00,
    -0.81%
    On Comex for delivery December was down $17.50, or 1%, at $1,744 an ounce, as the dollar continued to rise and higher Treasury yields on the precious metals.

  • ICE US Dollar Index DXY,
    +0.81%,
    The dollar, a gauge of the dollar’s strength against a basket of rivals, was up 0.2% at 108.38, having hit a multi-decade high last month.

  • bitcoin btcusd,
    -0.39%
    1% drop to $21,296.

  • In Europe, Stoxx 600 Equity Index SXXP,
    -0.96%
    fell 1.2%, while the UK stock-market benchmark FTSE 100 Z00,
    +0.09%
    was down 0.4%. Most of the stock markets in Asia also remained lower, although China’s Shanghai Composite SCOMP,
    +0.61%
    The trend extended with a 0.6% gain after the central bank cut mortgage rates to support the struggling asset sector.

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https://www.marketwatch.com/story/dow-futures-slump-around-300-points-as-traders-question-fed-pivot-thesis-11661160864?siteid=yhoof2&yptr=yahoo

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