Wall Street falls into bears; other markets react
Monday night saw the S&P500 join the Nasdaq in entering a bear market territory. In other words, the index fell by more than 20% from its most recent peak. The Nasdaq itself first entered bear market territory on 24 February, the day Russia’s invasion of Ukraine began.
On Tuesday, stocks continued to fall, as the S&P 500 dipped further into bear market territory as investors braced for further rate hikes from the Federal Reserve.
The S&P 500 tumbled 0.38% to close at 3,735.48. The Dow Jones Industrial Average dropped 151.91 points, or 0.5%, to settle at 30,364.83. It was the fifth day of declines for the broad-market index and the 30-stock Dow. The Nasdaq Composite rose 0.18% to finish at 10,828.35.
These moves come as investors brace themselves for a 75 basis-point hike from the Fed this week, rather than a 50 basis-point hike many had come to expect. That’s because last week’s inflation report showed prices running hotter than expected.
How are individual S&P 500 constituents performing?
Individual constituents of the S&P 500 index – mostly tech stocks – have performed much worse than the index itself. Netflix is down by 72% since the start of the year, the e-commerce group Etsy is down by 67%, and PayPal is down by 61%.
Away from the tech sector, the gaming group Caesar’s Entertainment is down by 58% since the start of the year while the retailer Bath & Body Works is off by 53%.
Other notable fallers include the sports apparel business Under Armour and the cruise line operator Carnival, which are both down by 51%, the asset manager T Rowe Price, which is down by 45% and the toolmaker Stanley Black & Decker, which is down by 44%.
Global stock market
European stock markets traded higher Wednesday, boosted by the announcement of an unscheduled European Central Bank get-together ahead of a Federal Reserve policy meeting which is expected to result in aggressive tightening to curb rampant inflation.
On Wednesday morning, the DAX in Germany traded 0.6% higher, the CAC 40 in France rose 0.6%, and the UK’s FTSE 100 climbed 0.3%. The pan-European Stoxx 600 climbed 0.4% in early trade, with banks and insurance stocks adding 2% to lead gains while oil and gas stocks slid 1.6%.
Shares in Asia-Pacific were mixed with markets also reacting to the latest Chinese economic data, including industrial production and retail sales for May. The year-to-date performance for major global indices has been worse, albeit slightly less poor than Wall Street. Among other leading stock indices around the world, the Nikkei 225 in Japan is down by 7.5% so far this year, the Hang Seng in Hong Kong and the Shanghai Composite in China by nearly 10%, the DAX in Germany by 16%, and the CAC-40 in France by 17%.
The more extreme falls experienced by US markets are down to one major factor - that the Federal Reserve is raising interest rates more rapidly than its counterparts such as the European Central Bank, the Bank of England, or the Bank of Japan.
Surging bold yields in Euro Zone
For Many governments across the Euro Zone, bond yields are surging. This prompted the European Central Bank (ECB) to announce an unscheduled monetary policy meeting for Wednesday, June 15th.
Borrowing costs for many governments have risen sharply in recent days. In fact, a measure known as Europe’s fear gauge — the difference between Italian and German bond yields which is widely watched by investors — widened the most since early 2020 earlier on Wednesday.
However, in the wake of Wednesday’s announcement, bond yields have come down and the euro moved higher against the U.S. dollar. The euro traded 0.7% up at $1.04 ahead of the market open in Europe. Shares of Italian banks also rallied on the back of the announcement. Intesa Sanpaolo and Banco Bpm both surged 5% in early European trading hours.
The market reaction so far suggests that some market players are expecting the ECB to address concerns over financial fragmentation and indeed provide some clarity about what sort of measures it might take to support highly indebted nations.
With the anticipated decisions by the European Central Bank and the US Federal Reserve on what monetary policies are to be taken to curb rampant inflation, investors will be on their toes. Experts are torn on predictions for market movements, and Wednesday’s announcements are set to have a huge impact on global markets’ reactions.