published on 06/13/2022
(Reuters) – The New York Stock Exchange opened sharply lower on Monday after another inversion in the bond yield curve, the latest illustration of many investors’ fear that the Federal Reserve will raise interest rates too quickly and promote a recession.
A few minutes after the start of trading, the Dow Jones index lost 641.44 points, or 2.04%, to 30,751.35, the Standard & Poor’s 500 fell 2.65% to 3,797.36 and the Nasdaq Composite gave up 3.11% to 10,987.50.
The S&P-500 thus brings its decline to more than 20% from its closing peak on January 3 (4,796.56 points), which corresponds to the definition of a bear market, a configuration feared by the market.
The CBOE volatility index, a closely followed barometer of investor nervousness, exceeds 32 points, the highest since May 20.
On the bond market, the yield on two-year Treasury bills is up 16 basis points to 3.2077% and the ten-year by almost 12 points to 3.2742%.
The portion of the yield curve separating these two maturities briefly inverted at the start of the day, confirming that some investors fear a recession in the coming months due to the rapid rise in the Federal Reserve’s key rates.
It is expected, according to consensus, to announce a half-point increase in its main rate on Wednesday, but after the higher than expected inflation figures in May, a growing number of investors fear that it will opt for a three-quarter point increase.
In total, the markets are now anticipating a 175 basis point increase in interest rates by the end of September according to the FedWatch barometer.
This context continues to penalize in the first place the large growth stocks and the main capitalizations of the high-tech sector such as Apple, Alphabet, Microsoft and Amazon, which lost between 2.8% and 4.4%.
The evolution of bond yields also penalizes the financial sector: Bank of America lost 2.29%, JPMorgan Chase & Co 1.99%, Morgan Stanley 2.8% and Visa 3.26%.
All Dow Jones values are moving into negative territory and the biggest drop is for Boeing, which fell 5.65%.
(Written by Marc Angrand)