On Tuesday, Wall Street continued its slide into a bear market, as the benchmark S&P 500 index fell to an intraday low of two years.
This was because the policymakers of the Federal Reserve expressed their intention to continue with interest rate hikes, even if it means risking an economic downturn.
Last week, the US Fed signaled that the high-interest rates could continue until the end of next year, which saw the S&P 500 index wipe out the remaining gains from its summer rally.
It came down to a low that had last been seen in November 2020. James Bullard, the President of St. Louis Fed, spoke on Tuesday in favor of more interest rate increases.
Likewise, Charles Evans, the President of the Chicago Fed, said that there would be an increase in interest rates by another 100 basis points this year.
Market analysts said that while this news may have been disappointing, it did not come off as a complete surprise.
They said that people were worried about the Federal Reserve, the pace of interest rate hikes and the economy’s health.
According to analysts, the US central bank is likely to keep its Fed funds rate in the range of 4.75% and 5.00% by the first quarter of next year.
The S&P 500
On January 23rd, the S&P 500 had closed at a record high, but with the decline on Tuesday, it has suffered from a total fall of 24% since then.
Out of the 11 S&P 500 sectors, ten of them saw declines, with utilities leading because of a 2.0% drop and consumer staples seeing a fall of 1.8%.
Google-parent Alphabet and Microsoft also suffered losses of 1% each for the day, which weighed down the S&P 500.
There was a 1% increase in Tesla, as the company’s shares worth $13 billion were exchanged, which was the highest for any company on Wall Street.
Due to the hawkish comments from the Federal Reserve officials, the yields on 10-year government bonds rose to their highest level seen in the last 12 years.
Afternoon trading saw a 0.74% drop in the Dow Jones Industrial Average, which brought it down to 29,045.38 points, while a 0.57% loss was recorded in the S&P 500 to bring it to 3,634.13.
A 0.24% fall was also seen in the Nasdaq Composite, which saw it come down to 10,777.0. The last two weeks have seen turmoil on Wall Street because of worries about the impact of soaring prices on corporate profits.
The third and fourth quarter S&P 500 earnings expectations have already been reduced by analysts, along with those for the entire year.
Analysts now believe that third-quarter S&P 500 earnings will rise by 4.6% per share year-over-year, as compared to the 11.1% rise that had been expected at the beginning of July.
There were no new highs for the last 52 weeks in the S&P 500, while new lows climbed to 138.