US stocks continued their disappointing performance, which began last week, on the back of growing expectations that the Federal Reserve (the US central bank) will continue to impose its tight monetary policies for longer periods than expected at the beginning of the year.
And after higher-than-expected inflation data appeared last week, and subsequent statements by Federal Reserve officials confirmed their preference for keeping interest rates for extended periods above the 5% level; US stock indices fell on Tuesday, recording their worst day in the new year, which witnessed strong gains in its first month.
In trading on the first day of the week, as Monday was a holiday on the occasion of President’s Day, the Dow Jones Industrial Average lost 697 points at once, representing more than 2% of its value, and the S&P 500 index fell by 2%, while the losses in the Nasdaq index reached, Most sensitive to interest rate expectations, to 2.5%.
Concurrently, the yield of the ten-year bonds rose to 3.90%, while the yield of the two-year bonds reached 4.7%, both levels we have not seen since last November. Dealers considered that the stock market “has now reflected what the bond market tried to say about interest expectations over the past two weeks.”
The focus in broader financial markets is on the minutes of the latest Federal Reserve meeting, Wednesday, after recent data increased the odds of continued monetary tightening.
European stocks also fell on Tuesday, after strong economic data boosted expectations of higher interest rates, while London-listed HSBC shares rose amid an increase in quarterly profits.
The pan-European STOXX 600 index fell 0.2%, after data showed that French and German economic activity returned to the growth zone, which means that central bank officials will reduce their concerns when making interest-raising decisions.
In the same vein, positive numbers for the services sector in the Eurozone indicated that the recovery in activity had gathered steam.
The interest rate-sensitive technology sector index fell 1.5%.
In a related way, the price of Brent crude fell by more than 1%, in a volatile session today, Tuesday, as the impact of persistent concerns about global economic growth overshadowed the impact of the drop in supply, which prompted investors to sell to take profits, after the gains of the previous day.
Brent crude ended trading down $1.02, or 1.2%, to $83.05 a barrel, and US West Texas crude, for March delivery, declined 18 cents, or 0.2%, to $76.16 a barrel.
“It appears that we have entered a period of decline due to interest rate concerns,” Phil Flynn, an analyst at Price Futures Group, told Reuters.
