The Dow Jones Industrial Average closed 1.63% lower at 34,299.99 points and the Standard & Poor’s 500 Index fell 2.04% to 4,352.64 points, in the biggest sell-off since May.
The Nasdaq Technology Index fell 2.83% to settle at 14,546.68 points.
Tech companies were again among the worst performers, due to the fact that interest rates on 10-year debt in the US were trading at high levels in late June, above 1.53%, in anticipation of tighter monetary policy by the Federal Reserve.
This was after last week the central bank announced that it should start removing stimulus (“dipping”) for the economy from November and signaling the possibility of a rate hike sooner than expected. But the timing of the “tapping” is not set yet, which adds to the concern in the markets.
If interest rates on debt continue to rise, it could further affect technology stocks, whose dividends have a low return.
A day of hard work
Stock markets had a tough day this Tuesday, both in Europe and the US, at a time when investors were more risk-averse, Craig Erlam, chief market analyst at Oanda, stresses in an analytical note, where business had access.
“There has been a lot to digest over the past week, from comparisons of Evergrande to Lehman to ‘everything is fine at the moment,’ and investors seem increasingly concerned about what will happen. Little has changed in recent days, But the attitudes may have changed,” asserts analyst Oanda.
He continues: “Last week, a message from central banks [BCE e Fed] It was that inflation was (above all) temporary and that the phase of the need for emergency stimulus was almost behind us. The recovery is slowing down, but the expectations are for it to pick up steam again, as well as price pressures. While that message doesn’t seem to have changed this week, investors don’t seem very comfortable.”
“Perhaps justification to take advantage of the fall to buy [o chamado ‘buy the dip’] It is losing steam in a world where central banks plan to withdraw stimulus due to rising inflation rather than economic strength. Or perhaps the “winter of discontent” has become a troubling reality at a time when energy shortages are driving up prices,” says Craig Erlam.
“Or is the endless list of risk factors finally starting to weigh on sentiment, with investors feeling as uncertain as central banks about their next move in the next 12 months? They are happening in the markets, and they don’t look like they will fade away soon,” he predicts.
Yellen warns of ‘shutdown’
Market participants were also interested in comments by Federal Reserve Chair Jerome Powell and US Treasury Secretary Janet Yellen, who were before the Senate Banking Committee today.
Yellen warned that the federal government could run out of cash from October 18 if Congress does not make a decision to raise the US debt ceiling after a proposal to that effect was made. Sink yesterday in the Senate.
Senate Republicans opposed the proposal, which was previously passed by the House and aims to fund the federal government and raise the debt ceiling. Thus the aim of the proposal was to avoid a “shutdown” by the federal government and default on US debt.
The advance came after Republicans urged Democrats to come up with a separate proposal on the debt ceiling issue, which now leaves Congress without a clear plan to keep the administration afloat from September 30.
September 30 is the date on which current government funding ends, and the 2022 budget is supposed to go into effect the next day. Avoiding a halt to federal public services from mid-October (when available funds are “running out”), CNBC stressed yesterday that it will be necessary to suspend or increase the country’s debt limit in the coming weeks to prevent a “default.”
CNN notes the possibility that Democrats may decide to withdraw from the federal funding proposal subject to the debt ceiling suspension, and instead try – as before – the temporary bill that allows agencies the possibility of continuing funding. This legislative action is known as a continuity decision. Although there is no final agreement on the federal budget, a “shutdown” is avoided by this short-term financing solution. [“stopgap spending bill”].
It will fund the temporary bill approved by the House of Representatives last week and keep the government “open” until December 3. In addition, the measure included suspending the debt ceiling until December 16, 2022. The clock is ticking to solve the debt limit problem, and Congress may only have until mid-October – when the federal government will not be able to repay. Your bills, Yellen said today.
Powell’s problems
Meanwhile, Powell faced pressing questions from some senators who have criticized the central bank’s guidance on asset trading, as well as financial regulation and diversification efforts.
Democratic Senator Elizabeth Warren has been a vocal critic, calling Powell “dangerous” and saying she would not support him for a second term at the head of the central bank.
“Your actions have made our banking system less secure and that makes you a dangerous man to have to lead the Fed. That is why I would oppose your reassignment,” he was quoted as saying by Bloomberg.
“A Republican Fed chair, who regularly votes to free Wall Street, can’t send our economy back to the financial cliff,” Warren said. “I don’t think it’s a risk worth taking.”
Powell’s term ends in late January, and Bloomberg reports that White House staff are considering President Joe Biden’s recommendation to keep him in office. Yellen, last month, had already shown her support for Powell – which is taken as a strong recommendation, as she herself was the Fed chair.
Speaking before the Senate Banking Committee – the day after two regional Fed chairs announced they were leaving after their investments had been vetted – Powell today defended the central bank and set out to make needed improvements in Fed policies.
Powell, who earlier this month ordered a reassessment of the Fed’s Code of Ethics, added that the central bank is also reviewing transactions executed by regional Fed chiefs to ensure they are legal and in line with existing ethical guidelines.
That’s after, at the start of today’s session, Democratic Senator Sherrod Brown said he intends to introduce legislation to prevent Federal Reserve officials from owning stock in companies.
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