October 1, 2022

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Fears of higher interest rates and lower profits lead to a sharp decline in US stock markets

Fears of higher interest rates and lower profits lead to a sharp decline in US stock markets

After a turbulent start to the week for stock markets in Asia and Europe, things changed in the US and all the leading US indexes ended on Monday.

The biggest market news yesterday was undoubtedly that the board of directors in Twitter has accepted the takeover offer From Elon Musk. Thus, the founder of Tesla bought one of the largest social platforms in the world with about 400 billion NOK.

Tesla is among the stocks declining the most, at more than ten percent.

It’s likely a combination of the market’s belief that Musk will use some of Tesla’s money to fund the Twitter acquisition, and that in the future Musk will spend a lot of time improving Twitter and thus become less focused on Tesla, says Robert Ness, chief investment officer at Nordea Funds.

Robert Ness, chief investment officer at Nordea.

Robert Ness, chief investment officer at Nordea. (Photo: Evind Sinset)

US stock markets rose on Monday, unlike most markets in Asia and Europe.

So, many may now see a sales opportunity, says equity strategist Paul Harper at DNB Markets.

On Tuesday, the most important indicators on Wall Street opened lower, and throughout the evening only the decline rose. This is how it ended at 10pm closing time:

  • The broad S&P 500 index fell 2.81 percent.
  • The Dow Jones Industrial Average fell 2.38 percent.
  • The heavy technology Nasdaq closed 3.95 percent down.

Thus, yesterday’s rally, as well as, for the Nasdaq, has evaporated. Among other things, the Tesla car driven by Elon Musk slipped more than 12 percent. Shares of Microsoft and Alphabet, which came out with results Tuesday evening, fell 3.7 and 3.6 percent, respectively.

The most important week of the year

Nordea’s Ness says we’re now in the hottest week of the reporting season in the US, with most results coming from the first quarter. Although next week is also important, we will show the main trend after this week.

In this way, Tuesday started poorly with General Electric (GE), which published its results before US stock markets opened. The results themselves were good, with the stock price dropping more than 12 percent because the company reported significant uncertainty ahead.

Technology giants Alphabet and Microsoft came out with results after US stock markets closed, late Tuesday night.

The first quarter was good, but that’s history. Moving forward, it’s easy to imagine there will be more disappointments, says Ness.

DNB’s Harper highlights concerns in the market that the US Federal Reserve is tightening too much, and that Fed Chair Jerome Powell For the first time in 22 years, interest rates rise 0.5 percentage point All at the monetary policy meeting in early May. The Fed generally adjusts interest rates up and down 0.25 percentage points at a time.

In addition, China’s “no virus” policy aggravates the already volatile situation with disrupted supply lines, which leads to higher prices and increased inflation. Shanghai, China’s largest city and main port, is almost completely booked.

Stock strategist Paul Harper at DNB Markets.

Stock strategist Paul Harper at DNB Markets. (Photo: Johannes)

– There are concerns about margin pressures, among others due to higher raw material prices and higher wage costs. With profits falling and interest rates soaring, it’s no wonder the market is suffering a bit, says Harper at DNB Markets.

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