Wall Street sank 1% on Tuesday, as investors prepared for updated economic forecasts and another significant interest rate increase by the US Federal Reserve this week to combat decades-high inflation.
Early trading saw losses across all 11 of the major S&P sectors, with the real estate and commodities sectors all falling by 1.6% and 2.1%, respectively.
As Treasury yields increased in anticipation of the rate hike, shares of rate-sensitive growth companies including Meta Platforms Inc, Tesla Inc, Microsoft Corp, Nvidia Corp, Alphabet Inc, and Amazon.com Inc declined between 0.9% and 1.5%.
While the carefully observed yield curve between two-year and 10-year notes continued to invert, the benchmark U.S. 10-year Treasury yield reached 3.58%, its highest level since April 2011.
This portion of the yield curve’s inversion can be a reliable predictor of a recession that would come one to two years after.
On Wednesday, the US central bank generally anticipated the third consecutive rate increase of 76 basis points. The markets have also priced in a 19% possibility of a 100 bps increase, and they predict the terminal rate to be 4.49% by March 2023.
According to Peter Cardillo, chief market economist at Spartan Capital Securities LLC, “Traders are being extremely cautious ahead of the Fed statement tomorrow and it’s the indigestion of rising yields that’s causing the market to be restless.”
The S&P 500 is currently trading below 3,900 points, which technical analysts saw as a significant support for the index.
The updated economic forecasts and dot plot estimates will also be emphasized as indicators of how policymakers perceive the endpoint for rates and the outlooks for unemployment, inflation, and economic growth.
“The Fed chairman’s hints about the potential course of action for tomorrow will be crucial. The market is mostly concerned with the question of whether 75 basis points will be the norm for the upcoming meetings “Cardillo threw in.
Investors are concerned that aggressive policy tightening measures could push the U.S. economy into a recession, which has led to the benchmark S&P 500 index losing 19.2% so far this year. Worries have been exacerbated by a recent gloomy outlook from FedEx Corp and an inverted US Treasury yield curve.
The S&P 500 was down 49.09 points, or 1.26%, at 3,850.80 at 9:52 a.m. ET, the Nasdaq Composite was down 118.50 points, or 1.03%, at 11,416.52, and the Dow Jones Industrial Average was down 396.47 points, or 1.28%, at 30,623.21.
