The New York Stock Exchange ended lower on Tuesday, in a market worried about the global rise in rates, the monetary policy decision of the American central bank (Fed) expected for Wednesday, and their impact on the economic situation.
The pullback for the Dow Jones, the Nasdaq index and the broader S&P 500 index is hovering around 1%.
For analysts at Briefing.com, “the most important factor” in the direction of the session was the continued rise in bond yields. The yield on 10-year US government bonds soared to 3.6%, a first since April 2011. The 2-year rate, which is more representative of market expectations in terms of monetary policy, came close to 4% (3.98%), a threshold it had not crossed for almost 15 years.
“The market is in a waiting position,” said Adam Sarhan of 50 Park Investments. “He is patient before seeing what the Fed will do”, which is to announce its monetary policy decision on Wednesday, after a two-day meeting. Operators are mainly counting on an increase of 0.75 percentage point in the institution’s key rate, which would bring it to a range of 3% to 3.25%. Investors fear that the Fed’s determination in its fight against inflation will precipitate the American economy into a recession.
The mood was further clouded by a warning from Ford, which reported after trading on Monday that its third-quarter results were set to suffer from a billion-dollar cost hike. The manufacturer nevertheless confirmed its forecast for net profit before tax and interest for the full year. The brutal reaction of the New York market (the title lost 12.3%), while analysts were rather measured about this announcement, testifies to the extreme nervousness of Wall Street. “It changes the dynamic” in terms of market results and forecasts, explained Adam Sarhan. “The market is looking for news that can support it, and it is having a hard time finding it,” he said.
Ford’s warning weighed on rival General Motors (-5.6% to $39.06), although the latter on Tuesday announced an order for 175,000 of its electric vehicles from the rental company of Hertz cars.
Sharp rate hike in sight
The Fed’s monetary policy committee began a two-day meeting on Tuesday after which a further sharp rise in its key rate should be announced, which will be used to fight against very high inflation in the United States. Discussions are due to end Wednesday at midday. A press release is expected, ahead of a press conference by Fed Chairman Jerome Powell.
At this meeting, the Fed is due to update its forecasts for GDP growth, inflation and the unemployment rate in the United States. And, for the fifth time since March, it will raise its key rate in order to slow inflation. This rate currently fluctuates within a range of 2.25% to 2.5%. A third increase of three quarters of a percentage point (75 basis points) is expected. But the upside could be even bigger: nearly one in five market participants even expects a one percentage point rise, according to CME Group’s futures product valuation.
This deliberate slowdown in the economy, which will undoubtedly be accompanied by a rise in the unemployment rate, is all the more difficult to carry out as the recession threatens the American economy, and, more broadly, the world economy. The excellent health of the job market, however, gives the Fed room to be rigorous, and hope to achieve the “soft landing” it is aiming for. The unemployment rate in the United States is 3.7%, one of the lowest in 50 years, and there are not enough workers to fill all the vacancies.