On President’s Day, Monday, February 20th, financial markets were closed to observe the Republic’s first president’s birthday. The following day, Tuesday, the stock market declined significantly. Indeed, stocks fell sharply at the opening of the market on Tuesday as worries about the Federal Reserve’s next rate increase piled up and retailers offered disappointing forecasts. The Dow Jones Industrial slid 696 points, or 2.1% putting the index in negative territory for the year. The S&P 500, which is the standard measure of the stock market, was also down 2%, while the Nasdaq Composite, the indicator that tracks tech companies, dropped 2.5%.
Rising yields as well as equity moves—over 90% of the S&P 500 stocks closed in the red—reflect the notion that the Federal Reserve may not be done lifting interest rates. High-interest rates have worked their way into the housing market as home sales in January declined for the 12th consecutive month, according to data released on Tuesday.
The bloodbath that took place today in the stock market did not only affect the American equity market. The Asian stock market was equally affected by today’s toll. Indeed, Asian shares declined this Wednesday after stocks tumbled on Wall Street due to the very same fear of potential raise in interest rates. Tokyo’s benchmark Nikkei 225 dipped 1.4% in morning trading to 27,100.51. Australia’s S&P/ASX 200 slipped 0.3% to 7,312. South Korea’s Kospi dropped 1.6% to 2,420.93, and Hong Kong’s Hang Seng slipped 0.1% to 20,500.35.
Investors are nervous across the world. New Zealand’s central bank raised its benchmark interest rates by a half-point to 4.75% to try to wrestle down inflation. The increase, which can raise the costs of borrowing for consumers on everything from credit to mortgages, comes despite widespread economic pain from a devastating cyclone.
Source: Federal Reserve
The Governors of the Federal Reserve should rally soon to discuss the next steps regarding inflation. As inflation remains high, it is clearly apparent that Fed’s Chair, Jerome Powell, will increase interest rates again. From March 2022 to February 2023, the Federal Reserve increased interest rates from nearly 0% to nearly 5%. It is hard to tell if this next round of interest rates increase will be the last one. If inflation persists at the high levels, the Feds will keep augmenting interest rates and 2023 will probably be another poor year of performance for investors and financial markets.