U.S. stocks suffer heavy losses as recession fears continue to fester

Like the Federal Reserve, the Swiss central bank, and the Bank of England announced interest rate hikes, overlaid with macro data released during the day to stimulate market concerns about the prospects for economic growth, the three major stock market indices in New York fell hard on the 16th, with the Dow falling below the key 30,000 points, down 19% from its historic high in January. By the end of the day, the Dow Jones Industrial Average fell 741.46 points over the previous trading day to close at 29,927.07 points, down 2.42%. Standard & Poor’s 500 stock index fell 123.22 points to close at 3666.77 points, down 3.25%. The Nasdaq Composite Index fell 453.06 points to close at 10,646.10 points, down 4.08%. In terms of sectors, all eleven major sectors of the S&P 500 Index fell. The energy sector and the non-essential consumer goods sector led the decline with 5.58% and 4.76%, respectively, while the essential consumer goods sector fell the least, by 0.66%.
The increased fears of a worsening economic situation
The Fed’s aggressive 75 basis point rate hike is helping to reduce inflation while also cooling the economy. However, if other countries’ central banks are influenced by the Fed’s monetary policy to follow through on tightening monetary policy, it could drag more economies into a slowdown or recession.
The latest assessment by Bloomberg Economic Research’s economic model shows that by early 2024, the U.S. economy is 72 percent likely to fall into recession.
With high inflation, the slowdown in U.S. economic activity is not only reflected in economic data, but also the more pessimistic views of the American public. A survey of 1,500 adult Americans conducted by YouGov, an opinion polling and data service company, from June 11 to 14 showed that 52 percent of people believe the U.S. economy is in bad shape, 25 percent believe the situation is average, and only 20 percent believe the U.S. economy is very good and good. 43 percent said the U.S. economy is in recession, and 33 percent believe the U.S. economy is slowing down.
UBS said on 16, that the Fed’s a more aggressive tightening of monetary policy negative stock market, so that the risk of recession, the U.S. economy to achieve a soft landing looks increasingly challenging.
The U.S. Department of Labor data released before the bell showed that the number of people claiming unemployment and relief for the first time last week was 229,000, higher than the market expectation of 220,000, the previous week’s data was revised from 229,000 to 232,000.
Data released by the U.S. Department of Commerce before the day’s bell showed that the annualized number of new housing starts in May was 1.549 million, lower than market expectations of 1.695 million, and the upwardly revised 1.81 million in April. The U.S. annualized number of approved permits for new housing in May was 1.695 million units, below market expectations of 1.78 million units, and the upwardly revised 1.823 million units in April.
The Philadelphia Fed released data earlier in the day showing that the bank’s regional manufacturing sentiment index for June was -3.3, weaker than market expectations of 5.5 and 2.6 in May.
Downward pressure on U.S. stocks increases
The Federal Reserve’s sharp tightening of monetary policy has left stocks facing a major shortfall, with reduced liquidity and deteriorating economic fundamentals meaning stocks are still difficult to stabilize.
Joe Perry, the senior analyst at foreign exchange brokerage Goldman Sachs, said a more aggressive rate hike cycle poses significant resistance to the stock market and could ensure a recession in the first half of 2023.
Perry believes that both the Nasdaq Composite Index and the S&P 500 have a downside, and does not rule out the S&P 500 falling to the 3,400 to 3,500 level. If the Fed raises interest rates by a greater margin, the Nasdaq may be under more pressure, and the decline may continue into this fall.
Germany’s Allianz chief economic adviser Mohamed El-Erian (Mohamed El-Erian) said in a media interview on the same day, that global central banks are lagging behind the situation in dealing with inflation and are now experiencing a “great awakening”.
UBS said late on the 15th, that the U.S. Institute for Supply Management’s manufacturing economic index will continue to fall and may fall below the 50 honor line. As the Institute of Supply Management manufacturing boom index and the S&P 500 index component companies have a good correlation between the growth of earnings per share, and thus decided to lower the forecast for the S&P 500 index component companies’ earnings per share.
UBS has lowered its forecast for S&P 500 earnings per share from $230 to $227 for this year and lowered its forecast for 2023 from $240 to $235 for the index’s constituents. The S&P 500’s target point by the end of this year was subsequently lowered from 4,300 to 3,900, and the target point in June 2023 was lowered from 4,500 to 4,200.
Analysts at UBS said the adjustment was appropriate given that inflation is at a high level and that the Fed may be more aggressive.
By Josie