On Wall Street, stock prices sharply fell on Tuesday, z diving to their lowest levels in over three months, as investors fear that interest rates set by the U.S. central bank will remain elevated longer than they had hoped.
The Dow Jones slid 1.14 percent to 33,618 points, while the S&P 500 plummeted 1.47 percent to 4,273 points, and the Nasdaq index fell 1.57 percent to 13,063 points. All three indices reached their lowest levels in over three months. In all 11 major sectors of the S&P 500 index, stock prices fell yesterday, with the largest drop in technology, at 1.8 percent.
This is a consequence of the assessment by leaders of the U.S. central bank that interest rates could rise further by the end of the year and could remain elevated longer than expected.
While this negatively impacts the stock market, yields on U.S. government bonds have reached new highs not seen in 16 years, making bonds an increasingly attractive investment.
– The market continues to adjust to higher interest rates. As rates may remain elevated longer than expected, there is a growing sense that the market is overvalued, that current price levels are unsustainable… and this has frightened buyers – explains Brad McMillan, director at Commonwealth Financial Network.
Investors are also concerned by a warning from Moody’s that a government shutdown, although temporary, would negatively impact the economy and the credit rating of the U.S. Specifically, if Congress does not secure funding for the fiscal year starting October 1, the operations of government services would be halted, leaving hundreds of thousands of employees temporarily without jobs and pay.
Every year at this time, Republicans and Democrats negotiate further funding for government services, and an agreement is usually reached at the last minute.
Investors are cautious also because several important reports are expected to be released this week, including those on inflation, production, and gross domestic product (GDP) in the U.S.
On most European exchanges, stock prices also fell yesterday. However, the London FTSE index strengthened by 0.02 percent to 7,625 points, while the Frankfurt DAX slid 0.97 percent to 15,255 points, and the Paris CAC fell 0.70 percent to 7,074 points.
On Asian Exchanges, Caution
On Asian exchanges today, trading is cautious precisely due to the decline of Wall Street, but on Chinese exchanges, stock prices have risen.
The MSCI index for the Asia-Pacific region was up 0.1 percent around 7:00 AM, after two days of sharp declines. On the Tokyo Stock Exchange, the Nikkei index weakened by 0.3 percent, while stock prices in Australia and South Korea fell between 0.2 and 0.3 percent. In Shanghai and Hong Kong, however, they rose between 0.3 and 0.6 percent.
The rise in Chinese exchanges is attributed to messages from the central bank there that it will adjust monetary policy and introduce precise and strong monetary measures to stimulate economic growth. After a regular meeting, central bank leaders clarified how they will maintain sufficient liquidity and support stable credit growth. A report indicating that in August, profits in the industrial sector rose compared to the same month last year positively influenced Chinese exchanges. Thanks to this, the decline in profits of those companies in the first eight months of this year has been mitigated to 11.7 percent year-on-year.
This data has supported hopes that the previous stimulus measures by Chinese authorities are beginning to yield results.
