On Tuesday, U.S. stocks ended with a mixed performance. The S& P 500 set a new 2022 low, while the Dow Jones Industrial Average fell deeper into a bear market. This was the day after a very volatile trading period.
The S& P 500 lost about 0.2% after falling below its intraday low on June 16, while the Dow Jones Industrials lost more than 100 points or about 0.4%.The tech-heavy Nasdaq Composite was an outlier, going up about 0.3% for the day.
Treasury yields kept going up, with the 10-year note getting close to 4%, which would be the highest since 2010, and the 2-year note going above 4.3%, which would be the highest in 15 years. The CBOE Volatility Index (VIX), which shows what Wall Street thinks short-term market volatility will be like, kept going up and now stands at 32, which is its highest level since June 17.
Tuesday was a busy day for investors. In a live interview, Neel Kashkari, president of the Minneapolis Federal Reserve Bank, told the Wall Street Journal in a live interview that he and his colleagues were “united” in taking strong steps to fight inflation.
Kashkari said, “We are committed to restoring price stability, but we also know that there is a risk of overdoing it on the front end because of these lags.” “I think we are moving at a fast enough pace,” he said.
The Chicago Fed’s president, Charles Evans, said earlier in the day at a forum in London that the US central bank will need to raise interest rates by at least another percentage point this year. However, he doesn’t think the job market will go into “recession-like” conditions.
The markets moved on Tuesday because Wall Street is getting more and more worried that the Federal Reserve’s plan to raise interest rates to fight inflation will cause the economy to slow down. Chair Jerome Powell used the word “pain” several times in a speech last week after the central bank announced its latest policy.
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“We have always known that restoring price stability while getting a small drop in unemployment and a soft landing would be very hard,” he said. “We don’t know if this process will cause a recession or, if it does, how bad that recession will be.”
As the major averages have fallen below their lows from June 16, strategists are wondering how much lower the indexes can go as the Fed continues to raise interest rates and analysts start to lower their earnings expectations for corporations.
Mike Wilson of Morgan Stanley is one of the most pessimistic analysts about stocks. He thinks that a faster rate of downward earnings revisions in the next few months will send stocks down. He thinks that the S&P 500 will reach a range of 3,000 to 3,400 later this fall.
The managing director of trading at Morgan Stanley’s E*TRADE, Chris Larkin, was more upbeat.
He said in a note: “Many traders and investors may not have noticed that last week’s drop put the SPX back below its bear-market threshold. As bad as this may be, historical trends show that the worst was usually over by the time the SPX first hit the bear-market threshold, which in this case was a little more than three months ago.
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