The stock market started the week off on a disappointing note, with most stocks declining. Of course, this was to be expected considering the Fed Reserve chairman Jerome Powell’s hawkish speech on Friday.
The Dow Jones Industrial Average fell 0.6% or down 184 points, and the S&P 500 shed 0.7%, while the Nasdaq Composite COMP shed approximately 1%. That sell-off continued from Friday when all the major indexes had their worst trading session in months.
During the annual Jackson Hole meeting on Friday last week, Powell revealed that the Fed would hike interest rates as much as needed to counter the high inflation rate even if it resulted in an economic slowdown. He explained that getting the economy back to price stability would take some time and would require causing ‘some pain to both households and businesses, a move that he called the ‘unfortunate costs of combating inflation.
Before the Friday meeting, chief investment officer at CIBC Private Wealth US, Dave Donabedian, wrote that the stock market had gotten ahead of itself on the false assumption that the Federal Reserve would be reducing the pace of interest rate hikes.
At the moment, the probability that the Fed will increase the benchmark lending rate by 75 basis points in September is about 75%, up from 55% in the previous week, according to data from CME Group.
As a result, treasury yields have surged higher. The 2-year yield, for instance, has increased by 0.036% percentage points to about 3.427%, approaching a multiyear high. The increase in treasury yields has led to the stock market dip, and if they keep on increasing, that could end up pushing corporate and mortgage rates higher, in turn reducing business and household spending power.
Louis Navellier, the founder of Navellier & Associates, recently wrote a note explaining that the main thing weighing on the stock market was fear that treasury bond yields would rise in step with the Fed reducing its balance sheet.
As rates edge higher again, much of the stock market’s worry revolves around the state of corporate earnings. In case consumers reduce their spending, companies’ sales and profits are likely to be negatively impacted. Meanwhile, earnings in the second quarter remained resilient and grew year-over-year as most companies beat analysts’ forecasts despite giving disappointing guidance. Going forward, the stock market can only hope that earnings for the third quarter will be better than the current market expectations.
Chief strategist at Principal Global Investors Seema Shah pointed out that while the earnings season was largely positive, persistent challenges paint the picture of an increasingly challenging operating environment that is likely to reduce profits in the second half of the year.
Here Are Some Stocks on the Move on the Stock Market Today
Smartphone giant Apple (NASDAQ:AAPL) dropped 1.43% on Tuesday after extending its three-day losing streak since Friday. According to a report from Politico, the Department of Justice lawyers are in the early stages of drafting a potential antitrust complaint against the iPhone maker.
Meta Platforms (NASDAQ:META) dropped 2%. The parent company of Facebook has reportedly agreed to settle a lawsuit that alleged the company had allowed third parties like Cambridge Analytica access to users’ private data, according to The Wall Street Journal
Dow Inc. (NYSE:DOW) declined 1.6% after analysts at KeyBanc downgraded the stock to Underweight from Sector Weight. Apparently, the analysts project that the short-term risk/reward for companies with significant exposure to commodities and Europe is skewed to the downside.
Dollar Tree (NASDAQ:DLTR) stock was up 1% despite the fact that Deutsche Bank cut its price target from $185 to $163.
FactSet (NYSE:FDS) stock fell 1% even after Deutsche Bank raised its price target to $507 from $463.
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