January 27, 2023

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A rough day on Wall Street after the 'Central Bank Boom': - Now many fear it's too much, too fast

A rough day on Wall Street after the ‘Central Bank Boom’: – Now many fear it’s too much, too fast

Stocks have been pointing straight down for US bourses since mid-August, approaching this year’s lows since mid-June. The stock market received an additional downward push on Wednesday, when the US central bank raised its key interest rate by 0.75 percent, at the same time that the rate path for 2022 and 2023 was sharply revised upward.

On Friday evening, the major US indexes ended the week down about 2% each:

  • The Dow Jones Industrial Average fell 1.6 percent.
  • The broad S&P 500 index fell 1.72 percent.
  • The Nasdaq Technology Index fell 1.8 percent.

The Nasdaq is down about 16 percent in just over a month, as risk capital has dried up completely and investors are looking for cheaper havens like government bonds and gold. The Dow Jones and Standard & Poor’s 500 followed closely and fell 12-13 percent in the same period.

– Too much, too fast

Nordea duo Leif-Rune Rein and Robert Næss believe the fear of recession is affecting the markets.

Ren says sentiment worsened a bit a week and a half ago, with higher inflation and weak earnings reports from US companies.

The sentiment index is at its lowest levels for a long time. Then we got the central bank mine this week, with all the increases. Then the situation is that central banks do not seem to have the patience to see the effects of higher interest rates.

Ron Lev Investment Director at Nordea Leaf.

Ron Lev Investment Director at Nordea Leaf. (Photo: Michaela Berg)

The tricky thing about rate increases, Ryan says, is that they don’t work right away, but with a delay.

– Now the fear in the market is that they raise too much. And if they do, the effect is worse than what they are trying to avoid. We haven’t seen the impact on the job market or the economy in general in the US yet. If you, as a central banker, are not experiencing the slowdown you are trying to achieve, then you will go up even more. Many now fear it will be too much, too quickly, he continues.

Næss points out that stocks that are supposedly stable on Wall Street are doing well, while cyclical stocks are falling.

It is usual to see that there is already a fear of stagnation. For example, oil stocks have been great this year, but when there are fears of a recession, it is unreasonable for oil prices to remain high.

can quickly turn

The interest rate path of a number of central banks has changed rapidly in recent months.

Long-term interest rates have risen well. The proportion of a five-year-old in the United States is 4 percent. In the UK, they have kept interest rates quite calm so far, when the 10-year rate jumped to 3.8 per cent. It hasn’t been more than a month since it was less than two percent. Now it has already risen.

The signals from the US central bank earlier this week were their intent to keep interest rates high for an extended period.

– Hence it is very difficult to avoid a recession, of which the market is more and more certain of its occurrence, says Ness.

The big question is how long it will last. Rin does not rule out that things can turn quickly.

– What we saw earlier in this downturn is that when you get to these levels, there was a bounce. He says it might be very good to get the bounce back very quickly.

– Despite higher interest rates in the future?

– actually yes. You get a reaction when you see them rising. But she can quickly turn around again. We saw it this summer, for example, says Ryan.

The stock market is located on a large scale

There were sharp declines across all of the leading European exchanges on Friday afternoon, down nearly 2%. It didn’t help that it ended up fairly flat on the Asian stock exchanges. Friday was marked by several European PMI numbers, which, according to Capital Economics, point to stagnation and strong price pressures.

Oslo’s Boroughs are among the worst performers and are down more than three percent, while the price of oil has fallen to $86 a barrel.

Most economists also believe that the US is headed straight into a recession, if it isn’t already there. The Fed’s goal in raising interest rates is to beat inflation and ensure a smooth landing as possible.

US government interest rates continue to rise, and the interest rate on 10-year government bonds is now at 3.71 percent, the highest level since February 2011. The so-called US “ten-year” is the most important reference interest rate in the world.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using links that lead directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.

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