Stocks struggle as markets brace for another ‘unusually large’ Fed rate hike

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Fresh off the market’s worst week since June, stocks struggled to recover from losses on Monday as investors anxiously await the Federal Reserve’s impending rate hike this week — one that is gearing up to be more aggressive than previously expected. as officials struggle to tame stubbornly high inflation.

Key facts

The Dow Jones Industrial Average fell 109 points, or 0.4%, to 30,710 shortly after market opening, while the S&P 500 and tech-heavy Nasdaq fell 0.4% and 0.3%, respectively.

Oil prices fell more than 2% as the risks of a recession weighed heavily on the market, Sevens Report analyst Tom Essaye wrote in a note Monday; the price of a barrel of West Texas Intermediate fell to $82 in early trading – nearly the lowest level of the year.

In a weekend note to customers, Goldman Sachs economists updated their forecast for gross domestic product growth to include no growth in the fourth quarter and 1.1% growth next year, down from 1.5% previously expected. due to the possibility of another “unusually large” rate hike this week.

Earlier this month, economists raised their Fed forecast by a 75 basis point increase at Wednesday’s meeting and a one in four chance of a full point gain, as opposed to the half-point gain previously forecast.

While Fed Chair Jerome Powell has argued for slowing the pace of tightening after the latest increase in June, Fed officials have “sounded hawkish of late” and “seemed to imply progress in taming inflation hasn’t gone as fast as they’d like,” the team explains.

key background

The market last week posted its worst performance in months after the Labor Department reported that inflation rose more sharply than expected in August, fueling concerns that Fed officials may need to act more aggressively to suppress inflation. The S&P is down 10% since its peak in August and is down 19% this year. “The summer rally is over,” Bank of America’s Savita Subramanian recently wrote in a note, predicting the S&P will fall another 8% by the end of the year. Meanwhile, the Nasdaq is down 28% this year.

Crucial Quote

“The Fed has more work to do,” Subramanian said in a weekend note. “An aggressive Fed may detest stocks that have benefited from low interest rates and disinflation (i.e. most of the S&P 500), but lessons from the 1970s teach us that premature easing could lead to another wave of inflation — and that short-term market volatility, a lower price can be paid.” Consumer prices rose 8.3% in the 12 months ended August – slowing for the second month in a row (thanks in large part to falling gas prices), but still ahead of the 8% increase economists had forecast.

Surprising fact

As investors weigh the prospect of bigger rate hikes, 10-year Treasury yields hit 3.518% this morning, the highest level in 11 years.

Read further

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