The New York Stock Exchange fell sharply ahead of the two-day meeting of the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC), which began on Thursday.
At the New York Stock Exchange (NYSE) on the 20th (Eastern Time), the Dow Jones Industrial Average closed at 30,706.23, down 313.45 points (1.01%) from the previous day.
The Standard & Poor’s (S&P) 500 index fell 43.96 points (1.13%) to 3,855.93, and the Nasdaq index, which focuses on technology stocks, closed at 11,425.05, down 109.97 points (0.95%) from the fray.
Investors watched the steep rise in Treasury bond yields ahead of the FOMC rate decision, which will be released the next day at 2pm EST.
The size of the Fed rate increase reflected in the interest rate futures market is 0.75 percentage points.
If the Fed raises interest rates again this time by 0.75 percentage points, this would be the third ‘giant step’ in a row.
However, some argue that the possibility of a higher step (1% point increase) should be kept open.
A day before the results of the FOMC meeting, Sweden’s central bank raised its key interest rate by 1 percentage point.
This is the second 1 percentage point rate hike among major central banks since Canada’s central bank raised the key interest rate by 1 percentage point in July.
Treasury yields are rising sharply, led by short-term bonds, as the Fed is expected to continue to tighten intensively in the short term.
The yield on the two-year Treasury bond was more than 4%.
This is the first time since October 2007.
The 10-year government bond yield rose to a level of 3.6%, the highest since April 2011.
The yield on Italy’s 10-year government bond is also on the rise, with the yield on the 10-year government bond reaching the highest level since 2013.
This is because concerns are growing that global central banks will tighten together ahead of an additional rate hike by the US following the very high strength rate hike in Sweden.
On the 22nd of this week, the Bank of England and the Swiss Central Bank are also due to decide on interest rates.
Investors are watching to see how far the Fed’s year-end rate forecast will rise.
At the meeting, a ‘dot plot’ including interest rate forecasts and the Fed’s economic forecasts will also be published.
In June, commissioners expected interest rates to rise to 3.4% by the end of the year and to 3.8% by the end of next year.
Already, many experts are predicting that the base rate will be slightly above 4% by the end of the year.
The current target for the US benchmark interest rate is 2.25% to 2.5%, and if the interest rate is raised by 0.75% at this meeting, the target rate will be raised to 3.00% to 3.25%.
Ford, the US carmaker, said it would cost an extra $1 billion in the third quarter due to rising component prices and supply chain problems due to rising inflation, raising market concerns.
Ford estimated that the unfinished car inventory could reach 40,000-45,000 units, more than expected due to lack of parts.
Ford shares are down 12%.
This was the biggest drop since 2011, and Ford’s market cap evaporated by about $7 billion in a single day.
Investors have been paying attention to whether the company’s earnings outlook will continue to be downgraded since shipping company FedEx issued an earnings warning on recession worries.
Microsoft said it raised its quarterly dividend 9.7% to 68 cents a share, but the stock fell 0.8%.
Retailer Gap has announced that it will cut around 500 employees, and shares have fallen more than 3% on the news.
All 11 sectors in the S&P 500 fell, and real estate-related stocks fell more than 2%.
Materials (materials), consumer discretionary, telecommunications, and financial-related stocks fell more than 1%.
The housing data gave a somewhat mixed signal.
New US home starts in August recorded an annual rate of 1,575,000, up 12.2% from the previous month.
This is higher than the 1.45 million expected by experts.
On the other hand, the number of licenses for new housing starts fell by 10.0% from the previous month to 1,517,000 for the year.
This was below the market consensus of 1.6 million units.
New York stock market experts expressed concerns that the meeting could be more hawkish than expected and that the resulting rise in Treasury yields had a negative impact on stock prices.
Jack Avelyn of Cresset Capital told CNBC that higher 10-year Treasury yields contributed to the stock market turmoil.
“Investors are pretty good about the possibility of a rise of 0.75 percentage points, but there are some concerns that Powell could be extremely hawkish in the press conference,” he said.
According to the Chicago Mercantile Exchange’s (CME) FedWatch, there is an 84% chance that the Fed will raise rates by 0.75 percentage points in September in the Federal Funds (FF) interest rate futures market.
The probability of an increase of 1 percentage point was 16%.
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) rose 1.40 points (5.43%) to 27.16.