4.10pm: Wall Street plummets as sell-off resumes
US markets endured another somber session as investors braced for a big rate hike tomorrow and Ford Motor Co. plunged 12.3% after warnings that inflationary pressures along with supply chain issues could take $1 billion in would be affected.
At the close, the Dow Jones Industrial Average was down 313 points, or 1.01%, to 30,707.08, the S&P 500 was down 44 points, or 1.13%, to 3,856 and the Nasdaq Composite slipped 110 points, or 0.95%, to 11,425 away.
The Federal Open Markets Committee today began its two-day meeting with the US Federal Reserve, which is widely expected to hike interest rates by 75 basis points for a third straight session at the end of its monetary policy meeting on Wednesday, with markets also adding a likelihood of 17% are pricing in a 100 bps hike.
Equally important will be the tone of the accompanying statement, although recent history suggests it will remain hawkish as the bank remains committed to bringing inflation down to its 2% target.
Nike Inc (NYSE:NKE) was another corporate heavyweight that came under pressure. Shares fell 4.9% as Reuters reported that analysts at Barclays downgraded the stock from overweight to equal weight, citing volatility in the Chinese market due to pressure from COVID-related lockdowns in early September.
12:05 p.m.: Wall Street prepares for upcoming risks
Risk aversion has firmed in US indices as central banks prepare for another round of rate hikes.
The Dow Jones Industrial Average fell over 250 points, or 0.6%, to 30,769 points at midday, the S&P 500 slipped 0.7% to 3,872 points, while the Nasdaq Composite was down 0.2% to 11,515 points.
Joshua Mahony, senior market analyst at online trading platform IG, said tighter monetary policy and US President Joe Biden’s pledge to take on China over Taiwan would spark another round of risk aversion.
“While futures markets initially signaled a relatively bullish start to the day, it never really got off the ground as selling pressure mounted in anticipation of a week of monetary tightening and warnings of stubbornly high inflation,” Mahony said in a statement.
Mahony noted that there is little room for optimism as stakes in Taiwan and Ukraine are ramping up.
“Russia today presented plans for the rapid annexation of four Russian-backed regions of Ukraine, with referenda to be held over the coming week,” he said.
“While optimists may highlight the potential for a massive market rebound if Russia is pushed back and a peace deal reached, this decision to formalize their military accomplishments will make the task of resolving this conflict even more difficult.”
Mahoney added: “Meanwhile, Joe Biden issued a bold statement vowing that American forces would defend Taiwan against any Chinese attack, amid traders fearing a US-China conflict could have economic consequences, which could go well beyond those of the past year.”
Among the biggest gainers was Wynn Resorts (NASDAQ:WYNN), which is up 5% in trader sentiment from last week, when Credit Suisse gave the company an Outperform rating. Moderna and Las Vegas Sands were also both up over 4%.
On the other hand, Ford continued to suffer losses, down more than 9.7%, while Iron Mountain (NYSE:IRM) declined 6.5% and Weyerhaeuser 5.9%.
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9:35 a.m.: Ford is the latest in a string of companies to be hit by inflation
U.S. stocks tumbled further on Tuesday morning as the Federal Open Market Committee begins its much-anticipated two-day rate-setting meeting in September.
Shortly after the open, the Dow Jones Industrial Average was down 273 points, or 0.9%, to 30,747 points, the S&P 500 was down 35 points, or 0.9%, to 3,865 points, and the Nasdaq Composite was down 98 points, or 0.9%, to 11,437 Points.
Ford Motor Co fell about 7% at opening after the automaker said inflation pushed its supplier costs by $1 billion in the current quarter.
Beyond Meat Inc (NASDAQ:BYND) is down about 1% after reports that the company’s chief operating officer was arrested over the weekend after he allegedly bit a man’s nose during an altercation.
6:30 a.m.: Seen more falls
US stocks should open lower on Tuesday as the Federal Reserve begins its two-day rate-setting meeting, which is widely expected to culminate in a 75 basis point hike on Wednesday.
Futures on the Dow Jones Industrial Average are down 0.4% in premarket trading, while those on the S&P 500 are down 0.5% and Nasdaq 100 contracts are down 0.6%.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, noted that activity in fed fund futures suggests an over 80% chance of a 75 basis point hike and a less than 20% chance of a 100 basis point hike .
“Although the probability of a full percentage point hike has risen to 35% following last week’s disappointing inflation reports, we still believe the Fed has nothing to gain by surprising the market with a bigger-than-expected rate hike,” she told The Fortitude US dollar is another factor that will help dissuade rate-setters from a larger hike.
In data released last week, the US consumer price index (CPI) for August showed inflation at 8.3% on an annualized basis, ahead of the economists’ median forecast of 8.1%. The data sent stock markets down, but sporadic bargain hunting erupted yesterday to support prices.
“Therefore, a 75 basis point hike at tomorrow’s announcement has the potential to bring some relief to the US dollar and equity markets as it would help degrade the 100 basis point hike scenario,” Ozkardeskaya said.
A 75 basis point rate hike on Wednesday will be the third such hike as US rate-setters seek to dampen inflation, which has been stuck around 40-year highs. Investors fear the spate of aggressive rate hikes will threaten economic growth and weigh on corporate earnings. US Treasury yields were higher before the rate ruling.
As always, investors will also scrutinize the statement on the US Federal Reserve’s interest rate decision.
“If there is any indication that Fed members are moving away from the ‘soft landing’ idea, the doves would retaliate more aggressively and we could see more relief in risk assets as Powell insists the US is facing the job market remains resilient to monetary tightening, this would be taken as a sign that the Fed will proceed with sustained rate hikes, and the relief – if any – would be much smaller,” concluded Ozkardeskaya.
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