On Wall Street, from highs to lows

Wednesday’s session on the New York Stock Exchange resulted in a deepening of the November correction. Today’s stock indices started in the black, but then fell below the line, which, of course, was attempted to be interpreted as “omicron”.

The declines began on Wall Street on Friday, when major indices lost more than 2% in reaction to Media panic over a new type of Chinese Corona virus. Investors remain concerned that the resurgence of hysteria will end with a return to lockdowns and closures that are hurting the economy. Another funnel. despite this There was a strong recovery on Monday. currently On Tuesday, the market returned to its lowest level After the Federal Reserve Chairman stopped calling inflation “transitional” and suggested ending the bond-buying program (colloquially known as “money printing”) soon.

The start of Wednesday’s session on Wall Street gave hope for very solid gains: the S&P500 and Nasdaq were already growing about 2%. The market may have liked the data coming out of the US economy. The ADP report showed an increase in the number of employees of more than half a million jobs, which was a result slightly above market consensus. The same reading is still very high (61.1 points) for the manufacturing sector.

But in the second half of the session everything started to fall apart. The indicators slid lower and lower until they turned red at the end of the trade, posting huge losses. The Dow Jones Industrial Average fell 1.34% to 34,021.61 points. The S&P500 lost 1.18% and ended the day at 4,512.91 points. The Nasdaq index fell 1.83 percent to 15,254.05 points. In this way, the three deepened the November correction.

In some comments, the discovery of the omicron variant in the US was given as an excuse to sell stock. However, the explanation for the gradual change in expectations regarding Fed policy for the next year is more likely. It is announced that the Fed intends to quickly “collapse” quantitative easing in order to start the process of raising interest rates, which have been at zero since March 2020, as soon as possible. The futures market expects the first rally “already” in June 2022 – according to Fed WatchTool calculations. But the chances of a rate hike in May are slowly increasing. By the end of 2022, the federal funds rate is expected to be around 1%.

Although it will still be a very modest increase given the massive over 6% inflation in America’s CPI, it will change a lot in the financial markets. Bonds will eventually become a competitor to high-value stocks, which could hurt the prices of the latter. For now, however, the debt market is raising US government bond prices – the 10-year Treasury yield fell on Wednesday by 2 basis points, to nearly 1.43%.

Krzysztof Colani

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