US stocks tumbled on Tuesday as investors unease about the impact of higher-for-longer interest rates continued to affect markets.
The Dow was down 496 points, or nearly 1.5%, by mid-afternoon – putting it into negative territory for the year – while the S&P 500 and Nasdaq indexes also fell by more than 1% each.
The Fed’s policy has also fueled concerns the housing market could take a hit – because high interest rates increase the costs of mortgages – and that the US economy could yet face a recession.
The CBOE volatility index, Wall Street’s ‘fear gauge,’ hit its highest since late May.
US stocks tumbled on Tuesday as investors unease about the impact of higher-for-longer interest rates continued to affect markets. The Dow was down nearly 1.5% by mid-afternoon
Financial news is displayed on a television screen on the floor of the New York Stock Exchange during afternoon trading on September 26, 2023 in New York City
The Dow was down 496 points, or nearly 1.5%, by mid-afternoon – putting it into negative territory for the year – while the S&P 500 and Nasdaq indexes also fell by more than 1% each
Data showed U.S. job openings unexpectedly increased in August, fueling worries about a tight labor market ahead of Friday’s key U.S. monthly jobs report.
Investors continue to closely watch benchmark Treasury yields, which hit 16-year highs on Tuesday.
‘The scenario that most investors were assuming is the Fed would need to ultimately cut short-term rates, and we would return to a favorable interest rate environment,’ said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
‘But investors are seeing a different scenario now – higher rates for longer.’
Higher borrowing costs are a negative for businesses and consumers.
All but one S&P 500 sector – utilities – were lower on the day, led by more than 2% declines in consumer discretionary and technology. Growth companies tend to be among the hardest hit by rising yields.
The Dow Jones Industrial Average fell 496.25 points, or 1.48%, to 32,937.1, the S&P 500 lost 69.39 points, or 1.62%, at 4,219 and the Nasdaq Composite dropped 277.28 points, or 2.08%, to 13,030.49.
Atlanta Fed President Raphael Bostic said there is no urgency for the central bank to raise its policy rate again, but it will likely be ‘a long time’ before rate cuts are appropriate.
Cleveland Fed President Loretta Mester said she is open to raising rates again, potentially at the bank’s next meeting.
Investors are getting ready for U.S. companies in the coming weeks to begin reporting on the last quarter, with some hoping the results could provide some positive news again for the market.
While the Dow is down slightly for the year so far, the Nasdaq remains up about 24% since Dec. 31 after an artificial intelligence-driven rally.
Sky-high interest rates recently pushed mortgages payments for families to nearly double what they were before the pandemic.
The average monthly mortgage payment on an American home has soared from $1,191 in January 2020 to $2,161 in July this year according to the Mortgage Brokers Association.
The increase has been driven by 11 successive increases in the bank rate as the administration struggles to control surging prices.
Hopes of a reprieve grew as the Fed held the bank rate at 5.25 to 5.5% after its September meeting while it waits to see if the hikes are working to cool inflation.
And while inflation has fallen from its peak of 9.1 per cent in June last year it has crept up again for the last three months leaving policymakers warning mortgage payers to expect yet another increase before the end of the year.
Federal Reserve chairman Jerome Powell has warned homeowners that there may be more mortgage rate hikes to come
Dailymail.com breaks down how relentless interest rate hikes have burnt a hole in household budgets
‘We want to see convincing evidence really that we have reached the appropriate level, and we’re seeing progress and we welcome that,’ said Fed Chair Jerome Powell, who was appointed by former president Donald Trump in 2018.
‘But you know we need to see more progress before we’ll be willing to reach that conclusion,’ he said.
The administration has blamed inflation supply shortages caused by the worldwide shutdown during the pandemic, and the impact of the war in Ukraine on the supply of Russian energy.
Labor shortages, stimulus checks sent by both the Trump and Biden administrations, along with a $1.9 trillion coronavirus relief package were also blamed for overheating an economy which bounced back strongly after lockdowns were lifted.
The President has tried to turn criticism of ‘Bidenomics’ on its head as the economy looks set to take center stage in next year’s general election.
‘House Republicans think massive corporations and the wealthiest Americans need a tax break,’ he tweeted today.
‘I think it’s time working people saw some relief, and the wealthiest started paying their fair share.’
But it comes as polls show him with the worst ratings of his presidency, trailing his likely opponent Donald Trump by nine percent in an ABC/WaPo sample at the weekend.
And the president’s approval rating on the economy has slumped to just 30 per cent.
‘Biden’s job approval rating is 19 points underwater, his ratings for handling the economy and immigration are at career lows,’ ABC wrote in its analysis.
‘A record number of Americans say they’ve become worse off under his presidency, three-quarters say he’s too old for another term and Donald Trump is looking better in retrospect — all severe challenges for Biden in his re-election campaign ahead.’
The rise in mortgage bills was tracked by rising house prices which jumped from $322,000 to $479,000 in the two years to the end of last year.
But they have slumped back to $416,000 since then as higher bank rates have deterred buyers leaving analysts warning of a ‘mortgage timebomb’ with millions trapped in homes they can no longer pay for.
US borrowers now owe a record $43billion on credit cards, and Missouri Senator Josh Hawley has demanded an 18 per cent limit to interest charged on it
Eleven successive increases in the Federal Reserve’s base rate have sent households’ borrowing costs to their highest level in more than two decades
Adding to the misery is a record level of credit card debt which now averages $10,170 per household it emerged this month after its second largest increase on record.
Americans are now paying 28 percent interest on $43billion of credit card debt prompting demands for a lower cap on what lenders can charge.
‘They’re out there actively encouraging and finding new ways to get consumers indebted — they hike rates, and they can make a killing on it,’ said Missouri Republican Senator Josh Hawley.
‘The government was quick to bail out the banks just this spring, but has ignored working people struggling to get ahead.’
Source: | This article originally belongs to Dailymail.co.uk