October 2, 2022

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Wall Street drops as Fed focus, Ford predicts, scares investors

Wall Street drops as Fed focus, Ford predicts, scares investors

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  • All eyes on Wednesday’s Fed policy decision
  • Ford sees an additional $1 billion in inflationary costs, and stocks fall
  • Nike downgrades after Barclays downgrades its credit rating due to China shutdown fears
  • Indices down: Dow 1.73%, S&P 1.8%, Nasdaq 1.58%

(Reuters) – Wall Street tumbled on Tuesday as traders prepared for another interest rate hike this week by the US Federal Reserve, sending markets lower after a Detroit giant provided further evidence that inflation is slowing US business.

Standard S&P 500 Index (.SPX) It has lost more than 19% so far this year as investors fear that aggressive policy tightening measures by the Federal Reserve could push the US economy into recession, with the latest poor outlook from delivery company FedEx Corp. (FDX.N) The Ford Motor Company, the automobile manufacturer (FN) Add to that the problems.

Ford shares fell 11.9% after it reported a bigger-than-expected $1 billion hit from inflation and pushed delivery of some vehicles into the fourth quarter due to a shortage of parts. Read more

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Competitor General Motors (GM.N) It also decreased by 5.7%.

Adding to a mixed batch of economic data, the Commerce Department report showed residential building permits (USBPE = ECI) – Among the most forward-looking housing indicators – it fell 10% to 1.517 million units, the lowest level since June 2020. Read more

“Markets have been under some pressure because it is clear that the economy and the rate of earnings growth is slowing and will slow further,” said Hugh Johnson, chief economist at Hugh Johnson Economics in Albany, New York.

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“The concern is that even though it slows down, the Fed is going to tell us in a very hawkish way that it is very focused on the 2% inflation rate and it will continue to tend toward restraint or be very difficult until they get to the 2% level.”

The US central bank is widely expected to raise interest rates by 75 basis points for the third time in a row at the end of its policy meeting on Wednesday, with markets also pricing in a 17% chance of a 100 basis point increase and projecting the final interest rate at 4.49% by March 2023.

Emphasis will also be placed on updated economic forecasts and bitmap estimates of signals related to policy makers’ perception of the end point of rates and expectations for unemployment, inflation and economic growth. Read more

“We will be in an environment where monthly economic data is scrutinized to a greater degree than it used to be,” said Doug Fincher, portfolio manager at Ionic Capital Management.

“The market believes that the Fed will control inflation at the expense of the economy. The question is whether it will achieve it with a soft landing or a hard landing.”

The US 10-year Treasury yield reached 3.56%, its highest level since April 2011, while the closely watched yield curve between 2-year and 10-year Treasuries has inverted.

A reversal in this part of the yield curve is seen as a reliable indicator that a recession will follow within one to two years.

By 1:57 p.m. ET, the Dow Jones Industrial Average (.DJI) It fell 536.96 points, or 1.73%, to 30,482.72 Standard & Poor’s 500 (.SPX) It lost 70.09 points, or 1.80%, to 3,829.8 points and the Nasdaq Composite (nineteenth) It fell 182.62 points, or 1.58%, to 11,352.40 points.

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S&P 500 . Index (.SPX) It is trading below 3900 points, a level that technical analysts consider strong support for the index, but has now been breached twice in the past three sessions.

All 11 major S&P sectors fell, with real estate sensitive to the economy (.SPLRCR) and materials (.SPLRCM) Sectors decreased by 3% and 2.5%, respectively.

Meanwhile, in another sign of nervousness about future corporate earnings, Nike Inc (NKE.N) Barclays analysts downgraded the rating to “equal weight” from “overweight,” citing volatility in the Chinese market due to pressures from the COVID-related shutdowns in early September. The sportswear giant’s stock fell 4.9%.

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Additional reporting by Devik Jain and Ankika Biswas in Bengaluru and David French in New York; Editing by Shunak Dasgupta, Magu Samuel and Lisa Shumaker

Our criteria: Thomson Reuters Trust Principles.