Wall Street closes sharply lower, fears Fed may have too heavy a hand


A trader at the New York Stock Exchange (GETTY IMAGES NORTH AMERICA/SPENCER PLATT)

The New York Stock Exchange closed sharply lower on Thursday, spooked by the prospect that a forced march by central banks, led by the Fed, will take the breath away from an economy already showing signs of weakness.

The Dow Jones, which lost almost 1,000 points in the session, closed with a fall of 2.42%, falling below 30,000 points for the first time since January 2021, while the Nasdaq index lost 4.08% and the broader S&P 500 index, 3.25%.

“It didn’t take long for Wall Street to lose yesterday’s enthusiasm after (the Fed’s announcements), as other major central banks are also becoming more aggressive in their own fights against inflation,” said Edward Moya, in a note. of Oanda. .

Following the Federal Reserve on Wednesday, the Bank of England also raised its reference rate on Thursday, but only 0.25 points, as did the Swiss National Bank, the latter taking investors completely by surprise.

“When people think about the impact of all central banks simultaneously moving ‘toward broad-based tightening’, ‘they say to themselves: I’ve got some profit left to take, come on,’ and start selling,” Maris Ogg explained. , portfolio manager at Tower Bridge Advisors.

“With the Fed’s balance sheet shrinking (beginning in June) and markets expecting another 0.75 percentage point increase at the next Fed meeting,” traders are wondering “if the Fed isn’t drifting,” and if it goes too fast and too strong in its monetary tightening, said Quincy Krosby of LPL Financial.

The environmental pessimism was fueled by a series of poor indicators, first of all the index of manufacturing activity in the Philadelphia region, which showed a contraction in June (-3.3 points), while economists expected an advance (+4 .8 points).

Another cloud that darkens the horizon of the US economy, the gradual increase in unemployment, illustrated by weekly registrations higher than expected (229,000). For Peter Boockvar, from Bleakley Advisory Group, “the increase in layoffs is watching us, the question is to know what the pace will be.”

The last negative sign, the drop in housing starts in the United States, which was at a level below expectations.

The first signs of a slowdown are beginning to appear, “so the question is whether this will affect the pace of inflation,” according to Maris Ogg. “Because the Fed is focused on that” rather than economic growth. “And if not, it looks like they won’t stop (raising rates) despite signs of declining consumer confidence” in the economy.

For Maris Ogg, the ongoing global monetary tightening, as well as the exit from the market of certain investors who want to limit their exposure to risk, threaten the liquidity of the market, which could further increase volatility or even create more brutal shocks.

Illustration, the 10-year US government bond yield fluctuated 0.26 percentage point on Thursday, a highly unusual range in a market with usually very measured moves. It stood at 3.23%, compared to 3.39% the previous day.

On the equity side, the technology giants led the decline, from Meta (-5.01%) to Apple (-3.97%), passing through Microsoft (-2.70%) and Alphabet (-3. 40%).

Twitter also closed in the red (-1.66% to $37.36), even further from the acquisition price proposed by Elon Musk ($54.20), who was vague about his plans for the platform during a meeting. with employees on Thursday.

As for Tesla, led by the billionaire businessman, it was leaked (-8.54% to $639.30), weighed down by the announcement of price increases for its models, but also by fears that the Twitter file would not be a distraction.

Among the few that float, mainly the so-called defensive stocks, that is, less sensitive to the economic situation, such as Walmart (+1.04%), Johnson & Johnson (+0.05%) or Procter & Gamble (+0, 61%).

The Revlon cosmetics group was booed (-13.33% to 1.95 dollars) after the announcement of its bankruptcy declaration on Wednesday, which should allow its restructuring. The company has had a tough time with the pandemic, which has caused a slowdown in spending on certain beauty products.

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