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The Dow plunges, while bond yields rise

2022-01-18T17:01:02.703Z


All three major indices opened lower and extended their losses throughout the morning. The Dow plunged more than 500 points.


Why might US interest rates rise this year?

2:37

(CNN) --

Wall Street is headed for another red day, right at the start of this short trading week, as investors grapple with earnings seasons and rising Treasury yields.

All three major indices opened lower and extended their losses throughout the morning.

The Dow plunged more than 500 points, or 1.4%, while the S&P 500 fell 1.3%.

For its part, the Nasdaq Composite fell 1.2%.

The market was closed this Monday for Martin Luther King Jr. Day.

"The culprit this morning, as it seems to be every day, is interest rates, with the 10-year yield over 1.8% and the 2-year yield down over 1%," said Paul Hickey of Bespoke Investment Group, in an email to clients.

Yields on both bonds have not been at similar levels since before the pandemic.

For the 10-year, it was in January 2020 that it last yielded more than 1.8%.

And the 2-year hasn't touched more than 1% since February 2020, according to Refinitiv.

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    raising interest rates too fast

"Wall Street has also been under pressure thanks to Federal Reserve tightening concerns, rising rates and concerns about slowing growth," analysts at Action Economics said in their morning note.

Precisely, the Federal Reserve is reversing its pandemic stimulus program and expects multiple interest rate hikes this year to curb inflation.

Wall Street predicts that the first rate hike will occur at the central bank's March meeting, according to the CME FedWatch tool.

That would be exactly two years after the Federal Reserve cut rates to virtually zero to support the economy during the pandemic.

And then there's earnings season.

"As last week's earnings reports revealed, the bottom line and guidance have been negatively affected by increased spending," analysts at Action Economics said.

Inflation concerns are everywhere.

As earnings season kicks off, investors were disappointed with JPMorgan Chase's results on Friday and Goldman Sachs' results on Tuesday morning.

Shares of both banks fell at the open on Tuesday, with JP Morgan trading down more than 3% and Goldman Sachs down more than 7% by mid-morning.

And as if that were not enough, this morning's economic data disappointed expectations, after the New York Fed's manufacturing index plunged 33 points to -0.7.

This abrupt change came after 18 months of growth.

"Manufacturing activity was little changed in New York state based on the January survey, suggesting growth has stalled after a period of significant expansion," the New York Fed said.

But is there reason to worry about the state of the stock market?

"The stock market weakness experienced so far in 2022 is not unusual," said Sam Stovall, chief investment strategist at CFRA Research.

In fact, history shows that stocks tend to sell off and correct after gaining more than 20% in the previous calendar year, Stovall said.

And if the settlement doesn't happen right away, it happens later in the year.

"The consequence for 2022 is that the current reduction has to fall further," he added.

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Source: cnnespanol

All news articles on 2022-01-18

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