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Why Are Markets Down Today? – Forbes Advisor

Markets are still down two days after the Fed released its fifth straight rate hike this year.

Since midday Friday, all three major stock indices are down more than 1.5%, following further overnight losses in Asia and Europe. The S&P 500 and Nasdaq Composite are down more than 1.7%, while the Dow Jones Industrial Average (DJIA) is down 1.6%.

Reading: What is wrong with the stock market

the s&p 500 is only about 45 points away from the June lows, marking a major turning point for equity markets.

The yield curve on inverted treasury has only steepened since Wednesday, deepening recession concerns. 2-year cash continues to rise to new 20-year highs at 4.195%, while benchmark 10-year cash is 3.734%.

Money is pouring into safe assets this week according to bofa global research, which reported that inflows to ultra-safe money market funds rose to the highest level since May.

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“the market is pricing in more aggressive rate hikes, no doubt. That said, the Fed remains much more aggressive about the expected rate hike trajectory than short-term markets expect,” said Mychal Campos, chief investment officer at digital advisor betterment.

the federal reserve is getting what it asked for

Ahead of this week’s Federal Open Markets Committee (FOMC) meeting, the Wall Street Journal reported that federal officials were quite unhappy with the positive market reaction to July’s rate hike.

between the july decision and mid-august, the s&p 500 gained 10%, despite fed chairman jerome powell going to great lengths to underscore that the fed was committed to its campaign to end with inflation. the stock market, it seems, didn’t take the hint.

powell’s discontent with the rally was so intense that he scrapped his prepared speech to the august jackson hole conference in favor of a “blunt and direct message” that the fed would do whatever it takes to suppress rising inflation.

“Without price stability, the economy doesn’t work for anybody,” Powell said during his speech last month at Jackson Hole. “reducing inflation is likely to require a sustained period of below-trend growth.”

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the market rally had already stalled when powell was giving a conference on the markets in montana. His blunt comments underscored that interest rate hikes would not end anytime soon and that the Federal Reserve was prepared to slow the economy, if necessary, to quell inflation.

To underscore the point, the august consumer price index (cpi) report, released in mid-september, showed that inflation is barely cooling off in the us. uu. the cpi remained higher in august, 8.3% more than the previous year; analysts had expected the number to drop to at least 8%.

market volatility will not subside

Don’t expect stock market volatility to subside with another 75 basis point (bps) rate hike in the can. Today’s strong downdraft is just the latest chapter in the wild market moves we’ve seen throughout 2022.

From early June to mid-August, stocks rallied on hopes that inflation was finally cooling, a recession this year was unlikely, and the Fed might soon stop raising rates.

what a difference a month makes. Since the August peak, stocks have rebounded due to extreme uncertainty surrounding rates and inflation.

“It is becoming increasingly clear to market participants that the extent of the Fed’s tightening thus far has not been enough to cool the economy and reduce inflation,” said Charlie Ripley, Senior Investment Strategist at Allianz investment management. “As a result, the Fed will likely need to raise the policy rate well above 4% to achieve its stable price mandate.”

“Headline inflation may have peaked, but the Fed still has work to do. The Fed is likely to raise rates by 75 basis points again as core inflation isn’t cooling as fast as expected,” said Jeffrey Roach, chief economist at LPL Financial.

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