The main indexes on Wall Street dropped by 1% during trading on Tuesday while investors decided to wait on the sideline, waiting for the Feds’ new interest rate decision. The Federal Reserve has begun its monetary policy meeting and it is scheduled to announce new rates on Wednesday as it seeks to curb the rampaging inflation.
Top Indexes Drop
Every sector in the S&P index fell in the early period of trading. The losses were led by the real estate sector which lost 1.6% and the material sector which lost 2.1%.
The stocks of companies that are naturally sensitive to rates such as Tesla, Meta Platforms, Nvidia, Microsoft, Amazon, and Alphabet all dropped between 0.9% on the low side and 1.5% on the high side. Meanwhile, Treasury yields rose as the market expects the rate increment.
The ten-year Treasury bond yields of the US rose to 3.58% which is its highest point since 2011, and the curve existing between the two-year and ten-year yields was inverted. Seeing an inversion at this point in the curve is indicative of an impending recession within a year or two.
It is generally expected that the US Federal Reserve will increase interest rates by 75 basis points after its meeting on Wednesday. But the market has also priced in a 19% possibility of a 100 basis points increase in the rates. The market also expects that terminal rates will be at 4.49% by the third month of 2023.
Analysts Might Enter a Shock
Spartan Capital Securities Chief Economist, Peter Cardillo, said that the market is exercising extreme caution while waiting for the Feds’ announcement. He said what causes the unsettlement in the market is the fact that it is yet to digest the possibility that yields might rise.
The S&P 500 index traded under 3,900 points which were initially agreed to be a support zone for the index by technical analysts. The market will also have its focus on updated projections regarding the economy, as well as the dot plots, to get an idea of what policymakers feel about the rates and perspectives on inflation, economic growth, and unemployment.
Cardillo added that the important thing about Wednesday would be what the Fed Chairman says the next move is. The market’s question would be if 75 basis points would be regular for the subsequent meetings of the Feds, and it is what the market is more concerned about, he added. Cardillo said he is not expecting a 100-basis point interest rate increment on Wednesday.
The S&P 500 has lost 19.2% already this year on the back of investors’ fears of the Feds’ hawkish policies. There is a general concern that the economy might slide into a recession.