After a full party on Wall Street on Wednesday, the rally was eroded by a sharp drop in US stock markets after a few hours of trading. The technology-heavy Nasdaq fell more than five percent, its biggest drop in nearly two years. Tesla and Amazon led the decline.
– It’s a bit like having a lot of fun at a party and then you’ve drunk a lot. Then comes a very ugly case.
So says Peter Hermannrod, now an investor and former chief strategist at Sparebank1 Markets.
In turbulent times, you get bigger ups and downs. People worry about economic growth and interest rates, but they have been for a long time. I can’t understand that there should be much to say that the Fed raised rates only 50 basis points, not 75 yesterday.
On Wednesday, the US Federal Reserve raised its key interest rate by 0.5 basis points. In addition, Governor Jerome Powell declared that it is not appropriate to raise interest rates by 0.75 points at once. This sent Wall Street up in complete relief on Wednesday.
Hermanud believes that the US Federal Reserve has a fundamental problem:
The less they do now, the more they will have to do later.
The main objective of the Central Bank is to rein in inflation, which has completely subsided during the Corona epidemic. Inflation in the US in March rose to 8.5% on a 12-month basis, the fastest increase in 40 years.
– The more we see, the more we see a picture that this has gone too far, and the need for a complete overhaul. Hermannrod says interest rates should go up and the economy down.
There is chaos in the economy now. I have never experienced before that there is a deficiency in everything.
He discovers new bottlenecks every time he meets.
Wherever you turn and turn, there is a shortage of people, goods, and input factors: everything you would expect when you’ve overstimulated the economy. This is what happens.
Hermannrod, which typically owns 100 percent of the equity risk capital, holds 15-20 percent in cash and puts options on 10 percent of the capital.
The three central pointers ended like this after a small final sprint:
- The Nasdaq Composite Index fell 5.1 percent
- Dow Jones minus 3.2 percent
- Standard & Poor’s 500 fell 3.6 percent
The drop of more than five percent on the Nasdaq is among the 40 largest declines in the Nasdaq in more than 30 years.
It wouldn’t be so dramatic if yesterday’s rise stopped. The key point is that the trend has been down for a while. It is not uncommon to experience volatility regarding Fed meetings. Then it comes back to reality again. That means strong inflation and high equity values, says Peter Warren, an investor and former principal.
He notes that there have been significant redemptions in US equity funds.
There is generally no good mood in the stock market during the day. There are not many optimists out there. Markets are now expected to decline after the Federal Reserve pulled the stimulus and allowed the market to start operating as a market again.
Technology falls more
Major tech companies are leading the decline just before trading closes:
- Apple -5.6%
- Microsoft -4.4%
- Alphabet C -4.7%
- Amazon -7.6%
- Tesla -8.3%
- Meta: -6.8%
After the central bank’s decision to raise the interest rate by 0.5 point to 0.75-1.0 percent, followed by assurances that the Fed would not consider raising the interest rate by as much as 0.75 points at once in upcoming meetings, it took and central indicators ended up between 2.8 percent and 3.2 percent on Wednesday.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads 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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