Persistent fears of a restrictive monetary policy in the USA for a longer period of time kept the US leading index Dow Jones Industrial in check on Thursday. The stock market barometer barely moved and continued the consolidation of the past three trading days, closing at 33,946.71 points.
However, there was some positive news for the technology stocks on the Nasdaq stock exchange, which had fallen sharply the day before. The Nasdaq 100 went up 1.18 percent to 15,042.32 points, leaving the 15,000 mark behind again. The market-wide S&P 500 also saw a slight increase of 0.37 percent, closing at 4381.89 points.
Traders attributed the subdued market sentiment to statements made by US Federal Reserve Chairman Jerome Powell on Wednesday. Powell confirmed before the finance committee of the House of Representatives that the signs point to further increases in key interest rates by the end of the year. He stated that two more rate hikes this year are “a pretty good guess” and that it will “take a long time” to bring inflation down to the desired 2 percent target.
These statements caused investors to reconsider the optimism sparked by the recent US interest rate pause. Janet Mui, head of market analysis at RBC Brewin Dolphin, commented that “recession risks are arguably higher if interest rates stay higher for longer, but risk assets don’t reflect that.” In Europe, interest rates are also spiraling upwards, with the central banks of England, Norway, Switzerland, and Turkey raising their key interest rates, in some cases significantly.
In company news, Amazon’s shares rose 4.3 percent following rumors of interest in Ocado by technology companies from the USA. The British “Times” reported the rumors without citing any further source, but Amazon was brought into play as a possible buyer. Ocado, which offers software and hardware for online grocery retailing, saw its shares jump a third in London.
On the other hand, Boeing was the biggest loser in the Dow, with a discount of over three percent. The aircraft manufacturer’s largest supplier, Spirit Aerosystems, suspended production following a decision by unionized workers to go on strike. As a result, shares in Spirit Aerosystems lost almost ten percent.
Despite a downgrade by Morgan Stanley, Tesla’s shares turned positive by two percent. The bank had removed the buy recommendation for the electric car manufacturer, but analyst Adam Jonas emphasized that Tesla is still “a must in every electric car portfolio.”
In the forex market, the euro fell to $1.0955, while in the European currency business, it had risen above the 1.10 dollar mark. The European Central Bank (ECB) had set the reference rate at 1.0985 US dollars.
US government bonds came under pressure on the bond market, with the futures contract for ten-year bonds (T-Note Future) losing 0.48 percent to 112.77 points. The yield on ten-year Treasuries rose to 3.80 percent.
Overall, the market was influenced by concerns about a restrictive monetary policy in the US and the potential impact on interest rates. Investors are closely watching the statements and actions of central banks around the world, as well as the performance of key companies in various sectors.
How are rising inflationary pressures affecting investor uncertainty and market behavior?
Ing inflation expectations are also a concern. Investors are still uncertain about the pace and duration of future rate hikes, which is reflected in the hesitant market behavior.”
The fears of a restrictive monetary policy are fueled by rising inflationary pressures in the US economy. The latest inflation data showed that consumer prices rose by 5.4 percent in June compared to the previous year, the highest increase since August 2008. This has led to concerns that the Federal Reserve might have to tighten monetary policy sooner than expected to curb inflation.
In addition to inflation concerns, there are also worries about the impact of the Delta variant of the coronavirus on economic growth. The spread of the variant has raised concerns about potential disruptions to global supply chains and the possibility of renewed lockdown measures.
Despite these uncertainties, some sectors of the stock market managed to rebound. Technology stocks, in particular, saw a positive turnaround on Thursday. This can be attributed to bargain hunting by investors who saw the recent sell-off as an opportunity to buy stocks at a discounted price.
Looking ahead, market participants will closely monitor upcoming economic data releases and statements from central bankers for clues about the future direction of monetary policy. Any further indications of tighter monetary conditions could potentially lead to increased volatility in the stock market. In the meantime, investors will remain cautious and continue to assess the risks associated with a prolonged period of restrictive monetary policy in the US.
The US stock market is feeling the pressure as concerns over a restrictive monetary policy set in. Investors worry about the potential impact on growth and profitability. It’s a critical time for decision-makers to carefully navigate these conditions.
The concerns surrounding the implementation of restrictive monetary policies are evident in the recent performance of the US stock market. Investors are deeply apprehensive about the potential impact on economic growth and corporate earnings. It will be crucial for policymakers to strike a delicate balance to prevent further market volatility.