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MARKET REVIEW. The New York Stock Exchange was hit hard on Tuesday by comments from the chairman of the US central bank (Fed) suggesting that the institution’s rates could go higher than expected so far, rekindling fears of a recession.
The Toronto Stock Exchange retreated more than one percent, weighed down by losses in the energy, metals and financials sectors.
To (re)consult market news
Stock market indices at closing
In Toronto, the S&P/TSX dropped 239.26 points (-1.17%) to 20,275.54 points.
In New York, the S&P 500 fell 62.05 points (-1.53%) to 3,986.37 points.
The Nasdaq fell 145.41 points (-1.25%) to 11,530.33 points.
The DOW retreated 574.98 points (-1.72%) to 32,856.46 points.
The loon fell US$0.0073 (-1.0002%) to US$0.7275.
The oil dropped US$3.25 (-4.04%) to US$77.21.
L’or closed down US$37.00 (-2.00%) at US$1,817.60.
The bitcoin ended down US$356.39 (-1.59%) at US$22,081.51.
The context
Fed chief Jerome Powell pointed out that the Fed’s main interest rate, which has been climbing for a year to control inflation, could rise at a faster rate than expected and go beyond the level at which the officials of the institution saw it so far stop, or 5.1%.
And rates could stay high “for a while,” he warned before a Senate committee.
Markets are now mostly expecting a rate hike, currently between 4.50% and 4.75%, of 50 basis points at the next meeting of the Fed’s Monetary Policy Committee on March 21-22.
However, a more aggressive Fed on rates, which increases the cost of credit for households and businesses, also increases the risk of recession, which would have an impact on corporate profits.
The New York Stock Exchange indices immediately took a nosedive.
Following Fed rate expectations, the yield on 2-year US government bonds jumped to its highest level since 2007, above the 5% threshold.
The 10-year rate also tightened, briefly going back above the 4% threshold.
This has further accentuated the phenomenon known as the inversion of the yield curve, which means that short-term rates are higher than long-term rates, and which is often considered to be a harbinger of an economic recession.
The gap between the US two-year rate and the ten-year rate hasn’t been this wide since 1981.
Maintaining the official line
Quincy Krosby, of LPL Financial, is a little surprised, however, by the reaction of the markets.
“Jerome Powell has only maintained the line he has set, which is that the Fed will do what it has to do to restore price stability,” she said.
“There are probably times when the market tends not to believe it or to think that the return to price stability will happen faster,” she said.
But Jerome Powell “repeats at will that the policy of the Fed depends on the indicators” and the latest inflation figures show that work remains to be done, added the specialist.
Ahead of the Fed’s next meeting, two other major inflation reports will be released as well as the much-awaited February jobs report.
In this context, banking stocks were particularly shaken: JPMorgan (JPM) fell 2.93% to US$138.62, Bank of America (BAC) 3,20% à 33,00$ US, Wells Fargo (WFC) 4.68% to US$44.45 and Citi (C) 2,11% à 51,08$ US.
Among the other values of the day, the airline JetBlue (JBLU) dropped 2.86% to US$8.16 after the formalization of a complaint filed by the Ministry of Justice to block the acquisition of its rival Spirit (SAVE, +4.71% to US$17.13) on the grounds that a merger would lead to higher prices for passengers.
The other large companies have since risen, American Airlines (AAL) taking 1.49% to US$16.36, Delta (FROM) 1.59% to US$39.07 and United Airlines (UAL) 2,99% à 54,01$ US.
The manufacturer of electric pick-ups Rivian (RIVN)which is struggling to ramp up its production, fell 14.54% to US$14.64 after announcing plans to market $1.3 billion worth of bonds.
WW International (WW)which offers Weight Watchers slimming diets, soared 79.07% to US$6.93 after announcing the acquisition of the company Sequence, which sells online consultations with weight management specialists.