What’s Going Wrong on Wall Street?
After a strong, and in some cases record-breaking, start to the year, US equities have cooled off more recently.
Yesterday, all the main US indices fell, with the S&P 500, Dow Jones and Nasdaq 100 dropping by 0.97%, 0.96%, 1.07% respectively.
All three of these indices recently posted record closing prices but have all declined considerably since. The S&P 500’s record closing high came on 3 January, but yesterday’s closing price confirmed a decline of 5.5% in the 11 sessions since.
For the tech-heavy Nasdaq 100, the figures are even worse. On 19 November, the index closed at a record high, but has since fallen a remarkable 9.2%.
So, what is going wrong on Wall Street at the moment? In a word, uncertainty.
Although the market seems to have by and large shaken off the majority of its concerns regarding Omicron, the economic landscape remains unclear. Inflation is at its highest rate in four decades in the US, exacerbated by disruptions in global supply chains. This fact is reinforced by the recent rocketing price of oil, which many analysts are touting to surpass $100 a barrel later this year.
As inflation rises, the Fed are under increasing pressure to take decisive action to arrest price increases before they become entrenched. Consequently, the Fed are now expected by many to hike interest rates three times this year, starting in March.
We recently wrote of the effect higher interest rates has on stocks, particularly tech stocks, and what we are currently seeing on Wall Street is the market attempting to price in rising inflation and the prospect of interest rate hikes.
Big tech companies are bearing the brunt of this currently, with Apple, Microsoft, Amazon, Meta Platforms (formerly Facebook), Tesla and Alphabet (Google) all in the red so far this year. Take Microsoft, for example; despite a slight rise yesterday in response to news of its latest acquisition, the tech giant has shed 9.8% from its share price since the turn of the year.
As we also wrote about recently, due to their mammoth market capitalisation, these big tech stocks account for a disproportionate percentage of both the S&P 500 and the Nasdaq 100, so their performance significantly impacts the overall performance of both of these indices.
As long as uncertainty lingers, we can expect to see more volatility in the US stock market and there is bound to be continued uncertainty until we learn for certain what actions the Fed will take in the coming months.
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