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Saturday, April 1, 2023

Wall Street collapsed on possible more aggressive rate adjustment than expected

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The S&P500 lost 61.93 points, or 1.5%, to 3,986.71, while the Nasdaq Composite fell 144.33 points, or 1.2%, to 11,531.40. The Dow Jones Industrial Average fell 573.13 points, or 1.7%, to 32,858.31.

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Stocks deepened their slide just after Powell’s prepared remarks for his testimony were released and sank further as the session progressed.

Powell told US lawmakers that the Federal Reserve is prepared to raise rates more aggressively if economic data suggests that tougher action is needed to rein in higher prices.

The remarks were his first since data showed inflation spiked unexpectedly in January and the US government reported an unusually large increase in jobs for the month.

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Traders sharply raised their bets on a 50 basis point rate hike in March following comments from Powell, with money market futures pricing it at more than 65% likely, up from 31% on Monday, according to CME Group’s FedWatch tool.

“Although improvements are perceived compared to last year, the downward rate of inflation has been milder in recent times, giving signs that converging to a reasonable number could take longer than desired. On the other hand, the economy of The US is showing signs of strength, which would open space for the Federal Reserve to deepen the rate hike cycle in response to entrenched inflation,” explained to Ambit from criteria.

The idea of ​​higher rates for longer is a “stumbling block” and “hearing it directly from Powell is a bit different than deducing it from the data,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance.

“From a risk rewards standpoint, investors have to re-calculate their desire to be invested with this new paradigm,” said Adam Sarhan, chief executive of 50 Park Investments.

The two-year Treasury yield, which best reflects short-term rate expectations, it reached 5% for the first time since July 2007.

Rising bond yields tend to weigh on equity valuations, especially growth and technology stocks, as higher rates reduce the value of future cash flows.

Source: Ambito

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