Wall Street falls as the Fed’s attention shifts, and 10-year Treasuries surpass 3%
Wall Street’s main indexes fell on Monday, giving up early gains in tragic trade, as investors became more cautious ahead of this week’s Federal Reserve meeting, when officials are largely anticipated to hike interest rates.
In addition to the weakening in equity markets, the yield on ten-year U.S. Treasuries reached 3% for the first time in more than three years, as traders prepared for an expected half-point rate hike and the start of “quantitative contraction,” in which the central bank reduces its balance sheet after buying bonds to support the economy during the pandemic.
Higher borrowing costs tend to harm corporate share values, since they make it more expensive to pursue plans for expansion, in addition to serving as a gauge for mortgage rates and other financial instruments. High-growth equities, such as technology firms, have taken a beating this year as traders prepare for this climate, with the tech-heavy NASDAQ losing about 22 percent in 2022.
Plenty of poor earnings announcements from the megacaps have worsened losses in recent days. Amazon.com Inc fell 2.7 percent on Monday, following a 14 percent decline on Friday following a bleak quarterly report. Apple Inc fell 2.5 percent as the iPhone manufacturer risked a potentially large fine after EU antitrust authorities charged it with blocking rivals’ access to its mobile payment technology.
However, Facebook parent Meta Platforms Inc rose 1.4 percent after plunging 9.8 percent the previous month, while Microsoft Corp and Nvidia Corp rose 0.5 percent and 0.3 percent, respectively, following steep drops in April.
“It’s a game of waiting.” “We’ll see what the Fed says, how the inflation data looks later next week, and we’ve got a lot of earnings (reports) this week,” said Dennis Dick, a trader with Bright Trading LLC. “It has been a difficult market, and sentiment has diminished to the point that many individuals have abandoned this sector.” I’m not suggesting the bottom has been reached, but perhaps it’s time to get off the cash and put some of that money to work.
The Federal Reserve of the United States is likely to deliver a series of aggressive interest rate hikes until at least the summer to cool rising prices, with traders predicting a 92.8 percent likelihood of a 50-basis-point boost on Wednesday, when the policy decision will be revealed. The S&P 500 has now dropped more than 14% since the beginning of the year. Its drop in the first four months of 2022 was the greatest in any year since 1939, owing to rising bond rates, the Ukrainian war, and pandemic-related lockdowns in China.
The Dow Jones Industrial Average fell 362.63 points, or 1.1 percent, to 32,614.58, the S&P 500 dropped 50 points, or 1.21 percent, to 4,081.93, and the NASDAQ Composite down 99.38 points, or 0.81 percent, to 12,235.26. The bulk of the 11 S&P sectors fell, with real estate leading the way. Pfizer Inc declined 2.5 percent after a big trial indicated that Paxlovid, a COVID-19 oral antiviral medication, was ineffective at preventing coronavirus infections in those who lived with someone sick with the virus.
Activision Blizzard rose 2.8 percent after Warren Buffett announced that Berkshire Hathaway Inc had acquired a 9.5 percent interest in the “Call of Duty” game developer. Spirit Airlines fell 10% after the ultra-low-cost airline rejected JetBlue Airways Corp’s $33-per-share buyout bid, citing a low possibility of clearance from government authorities. JetBlue, on the other hand, was down 0.8 percent after trading higher earlier in the afternoon.