First published at 4:44AM EST
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Stock indices fell in Monday’s trading session, as investors try to find ground after last week’s panic due to the 0.75% hike in interest rates.
The Dow Jones Industrial Average (DJIA) dipped 1.1%, while the S&P 500 (SPX) lost 1.02%. Meanwhile, the Nasdaq 100 (NDX) decreased by 0.5%. The real estate sector (XLRE) was the session’s laggard, as it fell by 2.64%. Conversely, the Consumer Staples sector (XLP) was the session’s leader, with a gain of 0.09%.
The movements came after a highly dynamic week which ended in losses for the three averages. On Friday, the S&P 500, the Dow, and the Nasdaq 100 were down 1.72%, 1.62%, and 1.66%, respectively.
The comments made by Federal Reserve Chairman Jerome Powell in the September FOMC meeting made it clear that inflation is too high for the central bank to turn dovish, and that it is nearly impossible to control the phenomenon without an interest-rate-induced recession.
The Fed does not plan to retract its stance until the interest rate reaches at least 4.6% (currently, the rate is in the range of 3%-3.25%), which is likely to be reached in 2023. The interest rate is expected to be pulled to 4.4% by the end of 2022.
In the bond market, yields continued to soar, with the Two-year Treasury yield at 4.315%. This level has not been seen since 2007. In addition, the 10-year Treasury yield is also surging, as it now hovers around 3.9%. The last time investors saw this level was back in 2010.
Compared to Friday, the market is pricing in a higher chance of a lower Fed Funds rate for the end of the year. In fact, the market’s expectations for a rate in the range of 4% to 4.25% increased to 31.4%, which is up from Friday’s expectations of 25.7%. In addition, the market is now also assigning a 67.3% probability to a range of 4.25% to 4.5%. For reference, investors had assigned a 70.6% chance Friday.
Oil continued to tick lower as economic slowdown jitters pressure the commodity. WTI crude fell 3.37% to $76.63 at the time of writing.
Meanwhile, Elon Musk is likely to face a deposition this week ahead of the trial regarding his $44 billion proposed acquisition of Twitter in October.
In other news, the Chinese automaker Li Auto lowered its Q3 outlook, while XPeng CEO upped his stake in the company.
Key Economic Data This Week
This week holds some key economic data including personal consumption expenditures data on Friday, which is considered an important measure to understand how much consumers are spending. It should be remembered that consumer spending is one of the major parts of the equation while calculating a nation’s gross domestic product. Therefore, this data will give traders an idea of how much growth to expect from the economy.
This week will also see key commentary from Fed Chair Powell, as well as Fed Vice Chair Lael Brainard, St. Louis Fed President James Bullard, San Francisco Fed President Mary Dand ly, and Fed Governor Michelle Bowman at several events.
It is becoming increasingly difficult to time the markets right now as buyers of the dip also continue to face losses and shift their investment strategies. This may be hinting at the end of the favorite COVID-era trade — the TINA (there is no alternative trade), which has always supported equities, with buyers of the dip stepping in during the worst times and boosting the stock market averages.
This is indeed a stomach-churning time for investors, and it is wise to keep a long-term view in mind while investing in fundamentally strong stocks that are bound to recover from a downturn.
