US stocks plunge with two-year US yield at 4% cusp

Stocks came under pressure as Treasury yields hit multi-year highs, with traders bracing for an aggressive Federal Reserve expected to raise rates to levels not seen since before the 2008 financial crisis.

A drop in stocks pushed the S&P 500 more than 10 percent below its Aug. 16 high, which marked the peak of the rally from its June lows. About 93 percent of its companies fell on Tuesday, with all major groups in the red. Two-year US yields approached 4 percent. Investors were also keeping an eye on geopolitical developments amid news that the Kremlin was rushing to hold bogus votes on annexing regions of Ukraine its forces still control.

Fed officials are about to put numbers on the “pain” they have been warning about when they release new projections for the economy on Wednesday. They could show a substantial increase in future rates and unemployment as the estimated price for reducing inflation. Officials are also widely expected to raise rates by 75 basis points, with some market watchers saying a full hike could also be on the table.

For Charlie McElligott, cross-asset strategist at Nomura Securities International, the market is underestimating the possibility that the Fed could opt for a move greater than 100 basis points. In addition to last week’s inflation surprise, he cited the fact that both the labor market and wages have remained “hot” since Fed Chairman Jerome Powell’s Jackson Hole speech in late August.

Only two of 96 analysts surveyed by Bloomberg currently predict a full point move this month.

“The idea that the Fed will raise rates and immediately cut them again in mid-2023 should now be put back in storage along with beach chairs,” said Gargi Chaudhuri, head of iShares investment strategy for the Americas at BlackRock. Inc. “Recent data has confirmed the need for the Fed’s tough stance. We believe we are entering a new regime of increased structural volatility and slower growth.”

Nouriel Roubini, who correctly predicted the financial crisis, sees a “long and ugly” recession in late 2022 that could last all of 2023 and a sharp correction in the S&P 500. “Even in a simple recession, the S&P 500 can drop 30 percent. percent,” said the president of Roubini Macro Associates. In a “really hard landing,” which he expects, it could drop 40 percent.

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For traders grappling with a hawkish Fed and a looming recession, the next step will be corporate earnings, a BlackRock co-chief investment officer said.

“What we’re worried about more and more is earnings downgrades and we haven’t had that yet,” said Nigel Bolton of BlackRock Fundamental Equities, which understands active equity strategies. “The tone of the management teams is already starting to change and we will see quite substantial reductions by 2023,” he said.

Professional speculators are refusing to give in to a punishing stock market prone to seemingly endless volatility, driving bullish and bearish positions at the fastest pace in five years. When the S&P 500 tumbled last week, hedge funds snapped up individual stocks as they bet against the broader market with products like exchange-traded funds, data from top brokerage Goldman Sachs Group Inc shows.

Appetite for protection against a decline in the entire S&P 500 index in the next three months has been falling along with the stock market, pushing the call options ratio to a new one-year low, data show. compiled by Credit Suisse Group. AG derivatives strategists show. The opposite has been happening at the single-stock level: A similar ratio jumped to a one-year high as company-specific announcements have triggered outsized stock market reactions.

Risk-off sentiment on Tuesday also dragged down cryptocurrencies, with Bitcoin sinking below $19,000.

The United States needs to regulate the existing stablecoin market or create its own Federal Reserve-backed digital currency to preserve the dollar’s dominance, a panel of experts said at a House hearing on Tuesday.

Key events this week:

  • Federal Reserve decision, followed by a press conference with Chairman Jerome Powell, on Wednesday
  • The CEOs of the big banks testify before the US Congress in a pair of hearings on Wednesday and Thursday.
  • US Existing Home Sales, Wednesday
  • EIA Crude Oil Inventory Report, Wednesday
  • Bank of Japan monetary policy decision, Thursday
  • The Bank of England interest rate decision, Thursday
  • US Conference Board Leading Index, Initial Jobless Claims, Thursday

Some of the main movements in the markets:

Stocks

  • The S&P 500 fell 1.1 percent at 4:01 pm New York time.
  • The Nasdaq 100 fell 0.9%
  • The Dow Jones industrial average fell 1 percent
  • MSCI World Index fell 0.9%

coins

  • The Bloomberg Dollar Spot Index rose 0.4 percent.
  • The euro fell 0.5% to $0.9978
  • Sterling fell 0.4% to $1.1386
  • The Japanese yen fell 0.3% to 143.66 per dollar

Captivity

  • The 10-year Treasury bond yield advanced seven basis points to 3.56%.
  • Germany’s 10-year yield advanced 12 basis points to 1.93%
  • Britain’s 10-year yield advanced 15 basis points to 3.29%

raw Materials

  • West Texas Intermediate crude fell 1.5% to $84.45 a barrel.
  • Gold futures fell 0.3% to $1,673.80 an ounce

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