Wall Street lost its momentum in the shadow of interest rates

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LAST UPDATE 18:30

Inability to move higher for the first time in the week, the indices of the US market show, as the de-escalation of pressures on bonds brought by the slowdown in the labor market appears short-lived.

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In particular, after the positive opening with gains that exceeded 1% for the Nasdaq, the indices have now all gone back into negative territory, with the industrial index Dow Jones to recede against 0.3% moving on 31,700 unitsthe enlarged one S&P 500 to lose 0.15% at 3,979 unitsas well as Nasdaq where located at 11,867 units with -0.1%.

For the month ending today, after July’s rally the indexes are on track to close out a difficult August with losses of more than 3% for the Dow and S&P 500, while the Nasdaq is down about 4%.

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In today’s session, new labor market data from research institute ADP showed that the private sector in the US continued to add jobs in August, but having slowed significantly from the previous month.

Specifically, jobs rose by 132,000 in August after July’s rise of 270,000, well missing market estimates that had expected an acceleration to around 300,000 jobs.

The report’s announcement led to a deceleration in short-term US government bond yields, shearing the divergence from long-term ones, in the consistently inverted curve (with short-term yields higher than long-term ones).

At the same time, signs of a weakening labor market have rekindled expectations in some parts of the market that the Fed’s cycle of aggressive rate hikes is coming to an end.

Something that mainly affects the securities of companies with a growth character, such as above all technology, which are based more on the expectations of their future returns and are therefore more dependent on the financing conditions.

In this climate, after all, the so-called Big Tech, the technology giants of capitalization initially showed to outperform the market, but lost the momentum – except for Meta which continues with +4.5% and Netflix at +3%.

Walgreens Boots Alliance is trying to support the Dow Jones with +1.6% and Amgen is close at +1.2%, however the index is weighed down by Nike, Salesforce with losses in the area of ​​1.5% both.

“We think we’re near the end of this cycle, but certainly that depends on a lot of things,” said Brenda Vingiello, chief investment officer at Sand Hill Global Advisors.

According to her, “there is no doubt that the Fed will raise interest rates in September, and probably two more times this year, but at this level they will have already done a lot and we will have moved into restrictive territory.”

Despite any expectations, comments from Fed officials continue to underscore the need for the Bank to maintain its aggressive stance, with Loretta Mester today forecasting an increase in the cost of federal borrowing above 4% by early 2023.

As a reminder, the range of the federal funds rate, which determines what banks charge each other for overnight lending and is linked to many consumer debt securities, currently stands at 2.25% – 2.5%.

Cleveland Fed President Loretta Mester also estimated that interest rates will remain high “for some time,” a phrase used in recent days by both Fed President Jay Powell and New York Fed President John Williams.

According to her, real interest rates, ie the difference between the Fed rate and inflation, should “move into positive territory”.

Source: Capital

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