Hopes for the Federal Reserve to push the brakes on its rapid interest rate increases end in ashes.
Stocks dropped on Monday due to investors’ growing concerns that the central bank will increase rates by three-quarters of a point the following month.
The Dow concluded the day with a drop of over 640 points, or 1.9%, while S&P was down 2.1%, and Nasdaq fell 2.6%.
All 30 Dow stocks were down, and merely 25 of the stocks in the blue-chip S&P 500 index traded up on Monday.
On Friday, stocks also plunged because the market had a four-week winning streak. The markets have recovered in July and August after a fatal first half of the year. However, the course may be going down the path once more.
On Monday morning, the CNN Business Fear & Greed Index, which estimates seven implications of market sentiment, moved nearer the Fear status. The index edged into the Greed levels only a week previously.
Worries are piling up that the Fed is not yet through to its mega rate hikes. In June and July, the Fed elevated the rates by three-quarters of a percentage point or 75 basis points.
However, after the new data on consumer and producer prices, which indicated that the inflation rate eased a tad bit last month, investors began to see a light that the Fed might lift rates by just half a point in September.
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The Fed Decision Lies Ahead
The expectation was that inflation was soothing and the economy might be stagnating. But the jobs market continues to be solid and retail sales have propped up considerably well, even with inflation.
That has resulted in market watchers forecasting that the Fed may continue to increase rates rapidly for the foreseeable future. The chance of another 75 basis-point increase versus a half-point hike is now thought to be around 50-50.
“Market expectations for what the Fed will do has a track record of flipping based on economic data,” stated Ally Invest’s Chief Money and Markets Strategist, Lindsey Bell, in a Monday report.
“As long as the Fed is in the driver’s seat, volatility is likely to remain elevated, and the market will remain reactionary.”
Stock volatility is possible all week as investors sit tight for Fed chair Jerome Powell’s highly awaited speech at the Fed’s yearly Jackson Hole symposium in Kansas City on Friday. The Fed’s next interest rate order is not until September 21.
Therefore, much of the economic data, such as the jobs report and inflation numbers for August, lies ahead.
“This has been more like a bull rally in a bear market,” the director of the product strategy at Leverage Shares, Oktay Kavrak, stated regarding the development of the stock market over the past few weeks.
“Recession is still a base case, and inflation remains stubbornly high. This could be one of those years where the market remains choppy.”