Concerns over rising interest rates and inflated prices cause American markets to plummet.
With interest rates on the rise, Wall Street traders are hesitant, resulting in losses for several US indices, especially the Dow. Bargain hunters are worrying about a fashion company's predictions, while the travel sector faces pressure.
Concerns over the likelihood of ongoing high inflation and a diminishing yield curve are making investors tentative towards the US stock market. The Dow Jones Index of prominent companies closed down 1.1% at 38,441 points on Wednesday. The wider S&P 500 dropped by 0.7% to 5,266 points, and the Nasdaq Index of Tech Companies fell 0.6% to 16,920 points. "The Federal Reserve finds itself in a challenging situation: the growth figures look strong, but stubborn inflation seems unresponsive," stated Robert Pavlik, Chief Investment Officer at Dakota Wealth Management. Investors are now questioning, "Is it worth investing now?".
In the banking sector, the US yield curve is anticipated for the fall. The attractive returns in the bond market are threatening the entire market. The yield on 10-year US Treasury bonds reached a four-week high of 4.6%.
The likelihood of rising interest rates and increased borrowing costs for businesses is projected by a rise in bond yields, causing profit margins to shrink. On Friday, the Report on Personal Consumption Expenditure (PCE) by the Bureau of Economic Analysis will be published, a crucial inflation indicator for the Federal Reserve.
The aviation sector took a hit as American Airlines lowered its earnings forecast. Their stocks plunged by 13.5%. Southwest suffered a nearly 4% fall as well. This unfortunate news happened during the country's Memorial Day weekend, traditionally considered the beginning of the travel season, with a predicted record travel demand in summer of 2024. "The bad bookings make us question how well-positioned American Airlines is to maximize the profits from this season," said David Vernon, analyst at Bernstein.
Shares in the cruise company Viking Holdings dropped by 2.9% as they suffered a bigger quarterly net loss, partially because of increased operating expenses.
However, not all stocks were on the decline. The positive outlook for the upcoming business year from apparel retailer Abercrombie & Fitch led to a record high share price. The stock value increased by 24% to $189.45. "Even in the face of a tumultuous economic climate, Abercrombie & Fitch continues to grasp the trending products and cater to consumers' desires, even as they invest and expand their client base," said Dana Telsey, an analyst at Telsey Advisory.
The US sporting goods retailer Dick's Sporting Goods also received a boost with a 15.9% increase in shares based on an improved forecast for the upcoming year.
The shares of IT support provider N-Able rose by 9.5% due to speculation about potential mergers and acquisitions, with a market valuation of around $2.3 billion.
The oil industry experienced excitement due to the $22.5 billion acquisition of competitor Marathon Oil by ConocoPhillips. Marathon's shares surged 8.4% while ConocoPhillips dropped 3.1%.
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The recent volatility in the stock market has led some investors to question the wisdom of share trading in the Dow Jones Index, given its 1.1% decline on Wednesday. Amidst these uncertainties, share prices of certain tech companies like those in the Nasdaq Index also showed a downturn, with a 0.6% decrease.
Subsequently, Wall Street traders have become concerned about the potential impact of rising interest rates on share trading, as they can increase borrowing costs for businesses and potentially shrink profit margins.
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