Wall Street analysts pointed out on Thursday (15th) that the signal that the end-point interest rate may reach more than 5% next year and maintain it for a period of time was the main culprit for the sharp drop in U.S. stocks on Thursday. The five fears ushered in another turbulent moment.
Rate cut hopes dashed
Dow JonesIt plunged more than 700 points on Thursday, the worst one-day performance in three months. The S&P slumped 2.62 percent, its biggest drop in two months, led by interest rate-sensitive communications services and information technology sectors. Analysts blamed Thursday’s plunge in U.S. stocks on investors’ delayed reaction to the Fed’s hawkish tone on Wednesday.
The Federal Reserve announced on Wednesday that it would raise interest rates by 2 yards, bringing the federal funds rate to a range of 4.25% to 4.45%, but hinted that the end-point interest rate may exceed 5% next year, and will not cut interest rates until 2024, crushing investors’ interest rate cuts next year expected.
“The Fed’s aggressive rate hikes this year have been a powerful dose of medicine for many investors who want to keep them short, despite the recent moderation in inflation,” said Kent Engelke, economic strategist at Capitol Securities Management. The Fed was adamant that it mightn’t lose the war on inflation, so there was a sell-off on Thursday.”
Callie Cox, U.S. investment analyst at eToro, said: “It’s like the ‘lesser of two evils’. Investors hope that a recession can be avoided, but the high interest rate environment is not the most conducive to investment.”
Art Hogan, chief market strategist at B. Riley Wealth, commented: “The Fed’s approach of keeping interest rates high for a long time is in stark contrast to investors’ expectations of the first rate cut sometime in 2023.”
Hogan warned that investors may be “overreacting” to a hawkish Fed because, in retrospect, the Fed has rarely had a track record of accurately forecasting end-point rates.
Quadruple Witching Day is coming
When the Federal Reserve set off a wave of selling in US stocks, the last “Four Witches” of this year will come on Friday (16th). According to historical experience, the “Four Witches Day” refers to the settlement of four derivative financial products at maturity, and the transaction volume will inevitably explode. At the opening and closing of the day, commodity prices and the stock market will usher in violent shocks.
SpotGamma founder Brent Kochuba said $2.4 trillion in S&P futures-linked options is expected to be the big story on Friday, as hundreds of thousands of contracts with strike prices concentrated around S&P 4,000 are regarding to expire, Kochuba warned, recently The market turmoil suggested that traders may be underestimating how volatile U.S. stocks will be at the end of the year.
Christmas Quotes Goodbye?
A brutal year is drawing to a close as U.S. stocks tumbled on Thursday. As of Thursday’s close,Dow Jones IndexSo far this year, it has fallen by 9.25%, and the S&P has fallen by 18.78%, whileThat fingerTired down 31.72%.
Low liquidity in the final weeks of 2022 might also exacerbate stock market volatility, analysts worry.
Garrett DeSimone, director of quantification at OptionMetrics, said the typically low liquidity in late December might further fuel stock market volatility, as options traders scrambled to adjust their positions accordingly.
Hogan said: “When the liquidity starts to be less strong at the end of the year, the stock market does not need a lot of trading to create volatility. This year does not seem to have a Christmas market. the rest of the year.”
