Wall Street’s three major stock indexes - the Dow Jones Industrial Average index, the S&P 500 and the Nasdaq Composite - closed Monday's trading down between flat and 2% lower. The Nasdaq, which groups high-priced tech stocks, led losses for the day.
“US stocks are trying to stabilize as investors await Fed tightening and as optimism over diplomatic efforts to end the war in Ukraine fades,” said Ed Moya, analyst at online trading platform OANDA.
The Federal Reserve’s Federal Open Market Committee, or FOMC, is widely expected to raise rates by 25 basis points, or a quarter percentage point after at its monthly meeting on Wednesday. The FOMC had left rates virtually at zero since the Covid-19 outbreak of March 2020.
Many economists, however, think what the central bank will do will not be enough to counter inflation growing at its fastest pace since 1982.
On top of a maximum of seven potential rate hikes this year - as per the number of FOMC calendar meetings - there is a yet-to-be-specified reduction in the Fed’s balance sheet, which now stands at $8.9 trillion after the central bank loaded up on Treasuries and mortgage-backed securities to support the economy since the COVID-19 outbreak in March 2020.
That action will reduce the cash in the financial system - but it will also bring uncertain consequences for bond and stock markets. The danger is that if inflation does not begin to subside in response to these initial moves, policymakers will end up raising rates too high, sending the economy into a recession and financial markets into a slump.
Those concerns were what led to Wall Street’s mostly lower finish for a third day in a row.
The Dow Jones Industrial Average, made up mostly of industrial stocks, closed in the flat. The Dow has lost about 19% since the year began.
The S&P 500, which groups the top 500 US stocks, settled down 0.7%. For the year, it was down about 12%.
The Nasdaq Composite, made of highly-valued tech stocks such as Facebook, Amazon, Apple, Nasdaq and Google, finished down 2%. It has lost almost 20% so far for 2022.
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