Posted Sep 29, 2022, 11:13 PM
The trap of rising interest rates is closing. Faced with monetary tightening desired by the Fed to curb inflation, investors are in low spirits . Wall Street ended sharply lower Thursday evening: the Dow Jones lost 1.54%, the Nasdaq 2.84% and the S&P 500 lost 2.11%.
The fall has been particularly marked since the start of the year for the index of technology stocks, which has fallen by more than 31% (compared to 23% for the S&P 500). Even Apple, which has so far been less affected than Facebook and Google, slipped 4.9%, losing more than $100 billion in one session.
During the day on Thursday, the US government confirmed that growth had indeed fallen by 0.6% in the second quarter, which was not a surprise for the market.
Mortgage rates have also continued to rise – they exceed 6%, which considerably reduces the purchasing power of buyers.
On the consumer front, poor results from used-car dealer CarMax also weighed on the mood on Wall Street. The title plunged 25% during the session, dragging with it its competitors Carvana and Sonic Automotive.
As for the labor market, new statistics from the Bureau of Labor showed that it was still just as tight. This risks pushing up wages, thus fueling inflation, and in return encouraging the Fed to increase rate hikes. There is now talk of two new rounds of 75 basis points before the end of the year, while the previous one dates back to last week.
Pension funds and private equity funds
In this “bear market”, this bearish market, there are few escape routes. Because now, even pension funds are sellers. In the first half of the year, these managers had bought stocks to rebalance their portfolios within the framework of their very strict rules of asset allocation, which had allowed Wall Street to do more or less well.
But according to a study by Credit Suisse Group quoted by Bloomberg, they will have to reduce 26 billion dollars of securities at the end of September, because of their poor performance.
The leveraged buyout (LBO) market is also rocking. After the failure of the resale of Citrix Systems last week, which caused the loss of nearly 600 million dollars to the lenders, the initiators of an LBO operation of 3.9 billion on the telecoms specialist Brightspeed gave up this Thursday. Rising rates break the private equity business model.
