October 5, 2022
Chicago 12, Melborne City, USA
Finance

‘A violent unwinding of crowded positions’: Dow plunges 1,000 points as investors grow nervous about Fed’s balancing act

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Here we go again.

Markets fell on Thursday, with Dow Jones Industrial Average DJIA,
-3.12%,
S&P 500 SPX,
-3.56%
And Nasdaq composite comp,
-4.99%
All Wednesday profits dripped.

Markets rallied on Wednesday after the Federal Reserve raised benchmark interest rates by 50 basis points. Fed Chair Jerome Powell says the central bank is unlikely to raise its benchmark interest rate by 75 basis points at its next meeting, but all have promised 50-basis-point hikes in a row.

The Federal Open Market Committee’s hooky tone pushes the markets Wednesday’s rate hike was the most aggressive tightening of monetary policy in a single meeting since 2000.

Michael Saul, CEO of Marketfield Asset Management, wrote in a research note, “There was nothing unpleasant about the message from FOMC. Nonetheless, the 50 basis-point increase ensured delivery served as a catalyst for violent stimulation of crowded locations. “

‘A 50 basis-point increase guaranteed delivery served as a catalyst for a violent unveiling of the crowded location.’


– Michael Saul, CEO of Marketfield Asset Management

Investors are concerned about the Fed’s fine-tuning law: raising interest rates to tackle inflation without pushing the US economy into recession. When the Fed raises rates, it becomes more difficult for millions of consumers to borrow. When consumers feel confident about borrowing, they are more likely to spend.

Case in point: The 30-year fixed rate mortgage interest rate averaged 5.27% for the week ended May 5, according to data released by Freddie Mac FMCC.
-0.46%
Thursday. This is 17 basis points higher than the previous week – one basis point equals one hundredth of a percentage point, or 1% of 1%.

This represents the highest point of the benchmark 30-year mortgage product since August 2009. This, some analysts say, marks the end of the epidemic-related housing boom.

Rick Ryder, chief investment officer at Blackrock’s Global Fixed Income, wrote in a note: “The risks we face in policy tightening are potential downturns, potential losing jobs and wages, and obviously tough financial conditions that will weigh on virtually all financial markets.” On wednesday

Russia’s aggression in Ukraine is causing extreme humanitarian and economic hardship. The impact on the US economy is uncertain.


– FOMC statement released Wednesday afternoon

“The committee is extremely focused on the risk of inflation,” the FOMC said in an updated statement on Wednesday afternoon. “The committee wants to achieve maximum employment and inflation at 2% in the long run.”

Then came the Russian war in Ukraine. “Russia’s aggression in Ukraine is causing serious humanitarian and economic problems. The impact on the U.S. economy is highly uncertain, “the FOMC added.” Attacks and related events are creating additional upward pressure on inflation and will likely have an impact on economic activity. “

And despite people living their lives as normal or close to normal, COVID-19 has not gone away and the world is still in the process of learning to live with the virus. “In addition, covid-related lockdowns in China could disrupt the supply chain,” the FOMC said in a statement on Wednesday.

On Thursday, the World Health Organization released new estimates that the total number of deaths directly or indirectly linked to the COVID-19 epidemic between 1 January 2020 and 31 December 2021 now stands at 15 million people. Johns Hopkins University estimates covid-related deaths in the same period as Thursday: 6.24 million.

But there were some notes of optimism on Thursday. “Based on our modest growth and inflation, we expect equity markets to last longer than current levels,” wrote Mark Hefele, chief investment officer at UBS Global Wealth Management. “We continue to favor areas in the market that should be overcome in an environment of high inflation, rising rates and high volatility.”

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