Wall Street Drops As Fed And Ford Forecasts Cause Fear

On Tuesday, Wall Street recorded declines as shortly before the US Federal Reserve meeting, which is expected to bring another hike in the interest rate, gave further evidence as to why taming inflation is important.

After all, corporate America is already suffering from the inflation numbers that have touched a high of four decades.

The decline

This year has already seen the benchmark US S&P 500 index decline by 19.1%, as investors are concerned that aggressive monetary policy tightening from the US central bank would tip the economy into a recession.

The level of 3,900 points is considered a strong support level for the S&P 500 index, but it closed below it for the third consecutive session on Tuesday.

This is because the dire outlook that had been presented by delivery company FedEX Corp was repeated this week, but this time it was car manufacturer Ford Motor Co.

There was a 12.3% drop in the shares of Ford, which is the biggest drop recorded in a single day since 2011.

This is because the company flagged a $1 billion hit, which is bigger than expected, due to inflation. Also, it cited shortages of parts as the reason for delaying delivery of some vehicles until the fourth quarter.

There was also a 5.6% decline in its competitor, General Motors Co. Market analysts said that third quarter earnings would see some softening because there is evidence of margin compression.

The rate hike

The policy meeting of the US Federal Reserve will conclude on Wednesday and it is widely expected that an interest rate hike of 75 basis points will be announced.

However, markets have also priced in a 17% probability of an interest rate hike of 100 basis points and have predicted that the terminal rate could reach 4.49% next year in March.

The focus will also be on the economic projections that will be updated, along with the dot plot estimates.

These are expected to give hints about the sense of the policymakers regarding the endpoint for interest rates, along with their outlook for inflation, unemployment and economic growth.

Other aspects

A report from the Commerce Department about residential building permits only added to the mix, as it showed that there was a 10% decline, which brought it to its lowest level of 1.517 million units since June 2020.

As for the 10-year US government bond yields, they climbed to 3.56%, which is the highest they have been since April 2011 and there was further inversion in the yield curve.

There was a 1.01% decline in the Dow Jones Industrial Average, which lost 313.45 points to reach 30,706.23, while a 1.13% drop in the S&P 500 saw it come down by 43.96 points to 3,855.93.

As for the Nasdaq Composite, it suffered a loss of 0.95%, which declined by 109.97 points to reach 11,425.05.

There was a decline recorded in all major 11 sectors of the S&P 500 index, with the biggest decliners being materials and real estate, as they dropped 1.9% and 2.6%, respectively.