US shares plunged on Tuesday night (GMT+3) as investor fears about spiking interest rates, slowing economic growth, and rampaging inflation culminated in a rout. The S&P 500 closed the day by 2.8% lower to 4,175.20, Dow Jones slid around 800 points to 33,240.18, while the tech-heavy Nasdaq Composite plunged nearly 4% to 12,490.74, hitting its biggest drop of the year and marking its lowest close since December 2020.
Meanwhile, it seems like investors have rotated into safe-havens, with the US Dollar Index edging to its highest level since March 2020 at 102.39 and the yen finally getting some respite from a months-long downtrend.
The markets are now reacting to the Fed’s ongoing struggle with 40-year high inflation. Tech stocks continue to fall post-market as investors are expressing doubt that corporate profits from a series of earnings will be unable to keep up with the Fed’s increasing aggressive stance on battling inflation. Shares of Google’s parent company Alphabet, for example, dropped around 4% despite reporting earnings that were in line with estimates.
Meanwhile, global stocks have also been dipping on fears that further lockdowns in China will exacerbate current supply-chain issues.
Even gold has not been spared. While traditionally seen as an inflation hedge, the precious metal’s prices have found stronger impetus coming from expectations of the Fed’s upcoming 50-point rate hike. As of Wednesday morning, spot gold has edged below $1900 to $1,898.48 as investors move away from the non-yielding gold in times of high interest rates.
As explained by analysts at Citi, “The dollar is the hedge in markets presently, while commodities including gold are no longer working as effectively”.
Lauren Goodwin, economist and portfolio strategist at New York Life Investments says that the big question for the markets now will not be “whether inflation will be high…[but] whether growth can keep up.”
Investors are now advised to continue paying close attention to the upcoming preliminary figures for US GDP (quarter-on-quarter), which will be released on Thursday, 28 April at 15:30 (GMT+3). Low growth has been forecasted – 1.1% as compared to the previous 6.9% –
As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.