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HomeBusinessUS stocks plummet as possibility of prolonged higher interest rates looms

US stocks plummet as possibility of prolonged higher interest rates looms

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Global equities sold off on Tuesday as investors prepared for an extended period of high interest rates, leading to a surge in the value of the dollar and a sell-off of Treasuries. Wall Street’s S&P 500 and Nasdaq Composite both experienced significant declines, reaching their lowest levels since June. This decline is attributed to investors adjusting their expectations of the Federal Reserve’s interest rate policies, particularly following the release of the latest “dot plot” which indicated a slower path for rate cuts in 2024. Consequently, government bond yields in the US and Europe rose, as hawkish central bank officials signaled that borrowing costs would remain elevated for longer than anticipated.

The expectation that interest rate cuts would occur in the coming year has diminished, and as a result, government bond yields rose across the US and Europe. Yields on benchmark 10-year Treasury and 30-year notes reached their highest levels since 2007 and 2011, respectively. Jack Ablin, Chief Investment Officer at Cresset Capital, noted that this shift in expectations is reflected in the changing prices of interest rate cuts. Furthermore, European equities experienced losses for the fourth consecutive trading session, with Germany’s Dax falling 1% to its lowest level since March. The dollar also strengthened, as it typically does when investors anticipate tightening monetary policy.

Attention is now turning to preliminary inflation data for the eurozone, which is expected to show a decrease in annual consumer prices from 5.2% in August to 4.5% in September. Christine Lagarde, president of the European Central Bank, reasserted the commitment to keeping rates high in order to bring inflation back to the 2% target. The ECB recently increased its benchmark deposit rate to an all-time high of 4%, signaling the end of tightening measures in this cycle. Overall, investors are adjusting their strategies in response to the shift in interest rate expectations and closely monitoring inflation data in various regions.

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