Dow tumbles 400 points, S&P 500 sheds 1.6%, as investors question Fed pivot thesis U.S. stocks were sliding on Monday on fears that the recent rally was based on an overly optimistic view about the Federal Reserve’s potential to pivot away from using sharply higher interest rates to fight inflation.
How are stocks trading?
The S&P 500 SPX, -1.69% fell 67 points, or 1.6%, to 4,161
The Dow Jones Industrial Average DJIA, -1.44% shed 438 points, or 1.3%, to 33,268
The Nasdaq Composite COMP, -2.04% tumbled 260 points, or 2.1%, to 12,442
On Friday, the Dow Jones Industrial Average fell 292 points, or 0.86%, to 33,707, the S&P 500 declined 55 points, or 1.29%, to 4,228, and the Nasdaq Composite dropped 260 points, or 2.01%, to 12,705. The Nasdaq Composite is up 19.3% from its mid-June low but remains down 18.8% for the year to date.
What’s driving markets?
Wall Street was on course for chunky declines as investors expressed wariness over a series of monetary, technical and seasonal factors.
The benchmark S&P 500 had rallied sharply off its mid-June low, partly on hopes that indications of peak inflation would allow the Fed to slow the pace of interest rate rises and even pivot to a dovish trajectory next year.
However, that assumption was challenged last week by a succession of Fed officials who appeared to warn traders about embracing a less hawkish monetary policy narrative. Central bankers will gather this week at their annual retreat in Jackson Hole, Wyoming, and Federal Reserve Chairman Jerome Powell is expected to deliver a highly anticipated speech on the economic outlook.
“The hawkish argument will prove convincing for Powell and the broader committee. However, the dovish arguments may limit the extent of the hawkish guidance from Powell at this week’s meeting,” noted Citigroup’s analysts led by chief US economist Andrew Hollenhorst. “Likely moderately-hawkish outcomes would involve Chair Powell clarifying that despite policy rates being in the range of ‘long-run’ neutral, appropriate settings are now higher given above-target inflation or Powell simply signaling that policy should be expected to continue to tighten until there are more convincing signs inflation is returning toward target.”
“We do not expect explicit guidance on the size of the September policy rate increase, but we continue to see a 75bp hike at the meeting as likely, even if used-car prices weigh on core inflation again in the August report,” said analysts in a client note on Monday.
https://www.marketwatch.com/story/dow-futures-slump-around-300-points-as-traders-question-fed-pivot-thesis-11661160864?mod=home-page
