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The broad equity market has a negative reaction to the possibility of an increase in interest rates. US stock futures are reducing across major indexes.
US stock futures fell on Monday morning following significant pressure the market experienced last week. Specifically, the Nasdaq 100 futures fell 0.2%, while the S&P 500 futures lost 0.12%. The biggest slip was the Dow Jones Industrial Average which slipped by 0.09%, losing 32 points. The loss is coming as part of the market’s reaction to an increase in interest rates in the equity market.
At the beginning of last week, the year’s first trading week, several stocks saw interesting rises. Examples like Apple Inc (NASDAQ: AAPL), Nvidia (NASDAQ: NVDA), Advanced Micro Devices (NASDAQ: AMD), and Tesla Inc (NASDAQ: TSLA) all began the year in high spirits with notable rallies on Monday. However, by the end of the week, the market saw several sell-offs. For instance, in the last five days, TSLA has lost more than 14%.
Specifically, two of the major stock averages posted four-day losing streaks on Friday, with the S&P 500 posting its first since September, sliding 0.4%. The Nasdaq fell 0.9% on Friday, also cementing a four-day straight loss. In addition, the Dow Jones Industrial Average lost 4.81 points.
According to reports, the Federal Reserve hinted that it could soft-pedal its monetary policy quicker and much more than initially thought. A December meeting with minutes released on Wednesday revealed a chance that interest rates will increase. The news caused a direct sell-off in the market. According to a summary written in a Friday note by Chris Hussey from Goldman Sachs, “as we kick-started 2022 this week, trading attention fell on a definitive rotation into value and pro-cyclical stocks and out of growth as investors digested a sharply higher rate environment.”
US Stock Futures in the Near Futures
At the moment, investors are waiting on official word and reports on how the near future of the equity market would be. A few inflation reports set for release this week could change the course of events. These reports could spur more sell-offs or potentially inspire renewed trust in the market.
However, there are calls for concern about the Federal Reserve’s upcoming move as the market waits. In a recent note, AMP Capital exec Diana Mousina stated that the Fed should be careful not to abruptly reverse the current policy in place. According to her, 2022 may see increased volatility because of factors such as the rate increase, geopolitics, general inflation, and midterm elections later in the year. Mousina said:
“The US Fed needs to tread carefully in removing policy accomodation – it should not happen too fast otherwise it risks a disruption to the rebound in economic growth and could lead to another ‘taper tantrum’.
Interestingly, the Goldman Sachs Group has a more grim forecast. In a recent research note by Jan Hatzius, the company said the Federal Reserve would begin its balance sheet runoff in July. Hatzius also says that the central bank will hike interest rates four times in 2022:
“With inflation probably still far above target…we no longer think that the start to runoff will substitute for a quarterly rate hike. We continue to see hikes in March, June, and September, and have now added a hike in December.”
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