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Stock Market News for Sep 27, 2022

Wall Street continued its free fall for five straight days as market participants were rattled by the Fed’s rigorous interest rate hike decision. Investors’ confidence on risky assets like equities have dented significantly as a global financial crisis looms large. The threat of a near-term recession has unnerved market participants. All the three major stock indexes ended in negative territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) tumbled 1.1% or 329.60 points to close at 29,260.81. The blue-chip index posted its lowest closing since Nov 12, 2020  and has entered the bear market territory for the first time since Mar 11, 2020. Notably, 26 components of the 30-stock index ended in negative territory while 4 in green.

The tech-heavy Nasdaq Composite finished at 10,802.92 due to weak performance of large-cap technology stocks. The tech-laden index is currently at 33.3% below its all-time high.

The S&P 500 dropped 1% to end at 3,655.04. The broad-market index recorded its lowest closing since Dec 14, 2020. Ten out of 11 broad sectors of the benchmark index closed in negative zone and one in the green. The Real Estate Select Sector SPDR (XLRE), the Utilities Select Sector SPDR (XLU) and the Energy Select Sector SPDR (XLE) plunged 2.7%, 2.4% and 2.5%, respectively.

The major loser of the S&P 500 Index was DISH Network Corp. DISH shares of which fell 6.1%. The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The fear-gauge CBOE Volatility Index (VIX) was up 7.8% to 32.26, marking its highest close since Jun 16. A total of 11.9 billion shares were traded on Monday, higher than the last 20-session average of 11.2 billion. Decliners outnumbered advancers on the NYSE by a 5.37-to-1 ratio. On Nasdaq, a 2.31 -to-1 ratio favored declining issues.

A Global Financial Crisis Looms Large  

The Fed has raised the median of the Fed Fund rate to 4.4% in September from 3.4% in June. This means that the range of the benchmark lending rate at the end of 2022 will be 4.25-4.5%, indicating a 75 basis-point and 50 basis-point interest rate hike in November and December, respectively.

Investors were expecting a rate cut in 2023, which is out of the question now as the central bank has projected that the median benchmark interest rate will reach 4.6% in 2023. This means another 50 basis-point rate hike throughout 2023. The first rate cut is not expected before 2024 as the Fed is expecting inflation to come down to its target rate of 2% in 2025.

As interest rate is surging in the United States, global investors are trying to hold U.S.-dollar denominated assets to get higher returns. Consequently, the ICE U.S. Dollar Index (DXY), which measures the greenback’s strength against a basket of six major currencies, has skyrocketed to 20-year high in 2022.

With respect to the U.S. dollar, – the British pound plunged to an all-time low, the Japanese yen is at a 20-year low and the euro is at a 20-year low. Currencies of several major emerging economies have fallen to their historic-low levels against the U.S. dollar.

Threat of a Recession

Economists and financial researchers are concerned that a rising dollar will hurt the sales of U.S. multinational companies as their products will be more expensive in the international markets. Further, the volume of international trade is likely to be impacted as most of these trades are settled in U.S. dollar terms.

The yields of U.S. government bonds have soared. On Sep 26, the yield on the benchmark 10-Year U.S. Treasury Note touched 3.9%, its highest since 2010. The yield on the short-term 2-year U.S. Treasury Note climbed 4.3%, its highest since 2007. The yield on the long-term 30-Year U.S. Treasury Note closed at 3.703%.

The yields of 2-year and 10-Year Notes have inverted for the last two months. After the last round rate hike in September, the yields on 10-Year and 30-Year Notes have also inverted. Economists generally consider this situation as a sign of an imminent recession.

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