The US stock markets are suffering heavy losses. The unexpectedly high inflation leads to fears of an interest rate hike by possibly 75 basis points on Wednesday. Technology is not alone.
The leading indices in New York started 2 to 3 percent lower, but in the meantime the losses have grown steeply. The Dow Jones
At about 17 hours, the S&P500 is down 2.6 percent, the S&P 500 is down 3.5 percent and the Nasdaq Composite is down 3.8 percent.
The broad-based S&P500 has thus ended up in a bear market: the index is more than 20 percent below its previous peak. It was reached on January 3 and amounted to 4,796.56 points. The S&P 500 is currently at 3,762.88 points. The Nasdaq Composite has been in a bear market since March 7, and has already lost 28 percent this year.
Investors are all but happy with fears that the Federal Reserve will raise interest rates by 75 basis points on Wednesday. The general expectation is still for an increase of 50 basis points, but some do not rule out the possibility that the US central bank will intervene even harder to contain inflation. In May, US inflation was 8.6 percent, much higher than expected. However, an interest rate hike that is too strong could plunge the United States into a recession.
Earlier today there was a signal that may indicate that. There was a brief inversion of the US yield curve: the yield on two-year government bonds was higher than that on ten-year government bonds.
All sectors of the S&P 500 are turning red. The biggest losses are for energy values, consumer-oriented companies and technology. Norwegian Cruise Line Cruise Line
gets a blow of 12.2 percent, aircraft maker Boeing
falls 9.1 percent and homebuilder DR Horton
falls 6.5 percent.
Apple falls among the tech giants
with 2.7 percent, Google parent Alphabet
at 3.6 percent, Microsoft
by 2.8 percent and Amazon.com
by 6.6 percent. Tech companies are sensitive to both high inflation (which affects purchasing power) and rising interest rates (which devalue their future cash flows).
Tesla electric car maker
, which announced after trading on Friday that shareholders will have to make a decision in August about splitting the share into three, cannot make any profit from this. Tesla loses 6.8 percent.
The loss comes despite an advice increase – from ‘sector perform’ (hold) to ‘outperform’ (buy) at RBC Capital Markets. Analyst Joseph Spak expects Tesla to deliver 249,000 cars in the second quarter and margins will surprise positively. In the medium to long term, he is even more bullish on the stock due to the automaker’s increasingly strong position in the middle of the sector.