US stocks have significantly declined in the last two months. Tech shares fell sharply on the current gloomy economic outlook. Thus, there are concerns that the Federal Reserve might adopt aggressive measures later this week. Wall Street's S&P 500 benchmark index fell by 2.1%, marking the most severe one-day decline since mid-June. Declines occurred across all sectors, but technology stocks and top cyclical consumers like Tesla & Amazon recorded the worst decline. In any case, the tech-dominated index dropped by 2.5%.
Unfortunately, tech stocks predicting long-term growth are now more vulnerable to borrowing rate hikes since they lessen earnings’ value. The Federal Reserve has hiked borrowing rates severally this year to help lower the 40-year highs inflation. However, analysts stress that the US central bank must commit to further interest rate hikes. The current stock market declines contrast the solid third quarter rally, but experts warn that initial gains do not necessarily indicate investors’ optimism following a dreadful year.
The Fed's aggressive reactions are apparent in government bond markets. For example, the yield on the 2-year Treasury note rose by 0.06%, which points to 3.32%. It increased from less than 1% last year to about 2.5% by late May. On the other hand, the benchmark 10-year note yield rose to more than 3% for the first time within a month. Generally speaking, higher yields indicate lower prices. Traders on 22nd August recorded a flurry of investors buying treasury futures to indicate the futures value wagers might decline.
The euro fell by 0.9% in currency markets against the dollar to $0.994. In other words, it slipped for the second time back to below $1 this summer. The euro hit parity in July with the greenback for the first time in decades. Besides, uncertainties over the probability of Russian energy supply cuts resulted in European power & gas prices surging, adding to the fears that the European region might slip into a recession. In any case, Europe's regional 600 equity gauge closed at 1% lower with a 2.3% Germany’s Dax fall.
Above all, the dollar index that tracks the US currency trend against a basket of peers increased by 0.7%. It usually rises during uncertainties. The worrying part is that this index has increased by about 3% within a month. Most importantly, shares in Asia replicated the Wall Street decline, with Australia’s S&P/ASX 200 down 0.5% & Japan’s Topix falling 1.1%. Mainland China shares also bounced following a mortgage lending rate slash from the People’s Bank of China for the second time this year, aiming to support its debt-laden real estate sector.
