- Expectations for 75 basis point hike in June climb
- Wall Street ‘fear gauge’ surges to one-month high
- S&P 500 hits the lowest level since March 2021
U.S. equities plunged on June 13, with the S&P 500 confirming that it is in a bear market, as fears increase that the predicted aggressive interest rate rises by the Federal Reserve would steer the economy into a recession.
The benchmark S&P index has dropped for five consecutive days, with the index currently down more than 20% from its latest record closing high to confirm a bear market commenced on January 3, according to a commonly used definition.
Every major S&P sector was steeply lower, with only about 10 components of the S&P 500 in certain territory on the day. Markets have faced pressure this year as surging prices, including a rise in oil prices due in part to the Ukrainian war, have put the Fed on course to take robust measures to tighten its monetary policy, such as interest rate hike.
The Fed is scheduled to declare its next policy announcement on June 15 and investors will be extremely focused on any hints of how aggressive the central bank plans to be hiking rates.
High-growth market giants such as Microsoft Corp (MSFT.O), Apple Inc (AAPL.O), and Amazon.com Inc (AMZN.O) were the greatest drags on S&P 500, as they yield on the benchmark 10-year U.S. Treasury note reached 3.44 percentage points, its highest level since April 2011. Growth stocks are more likely going to see their earnings eroded in a rising rate environment.
A higher-than-expected consumer price index (CPI) reading on Friday caused traders to price in a total of 175 basis points (bps) in interest rate increases by September.
Goldman Sachs late on Monday said it forecast a 75-basis-point hike in June and July. Expectations for a 75 basis point increase at the June meeting mounted to 96 percent late on Monday from 30% earlier in the day, according to CME’s Fedwatch Tool.
Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky, stated:
“The market had been trying to rally around the idea that inflation has peaked, and the Fed would not have to be more aggressive. That story fell apart on Friday with the CPI report, showing broad inflation being entrenched everywhere you look.”
The S&P 500 (.SPX) fell 3.85%, or 149.91 points, to close at 3,750.95 points, according to preliminary figures, while the Nasdaq Composite (.IXIC) fell 4.65%, or 526.82 points, to 10,813.20. The Dow Jones Industrial Average (.DJI) lost 2.73%, or 857.70 points, to 30,535.09.
Additionally, the two-year and 10-year U.S. Treasury yield curve briefly backtracked for the first time since April, which the majority in the markets see as a good indication that a recession could occur in the coming year or two.
The Nasdaq Composite index (.IXIC), which experienced its fourth consecutive fall, discovered it was in a bear market territory on March 7 and has lost almost 30% this year. The CBOE Volatility index (.VIX), also known as Wall Street’s fear gauge, rose to its top-level since May. However, most analysts view the level as dampened and could imply more selling pressure is awaiting.
Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle, commented:
“This is a market that does not look like it is capitulating as much as it is frustrated. Even with some of the securities being thrown out, it is just not deep enough, violent enough to see that people have taken positions off.”
Cryptocurrency- and blockchain-related stocks, including Marathon Digital Holdings (MARA.O), Riot Blockchain (RIOT.O), and Coinbase Global (COIN.O), all tumbled as bitcoin fell more than 10% after leading cryptocurrency lending company Celsius Network froze transfers and withdrawals citing “extreme” conditions.