US stock extend decline as investors prepare for a potential 75 basis point rate hike from the Fed
- The S&P 500 extended its two-day decline to 5% on Tuesday as investors prepare for the Fed's Wednesday meeting.
- The Fed is expected to raise interest rates by 75 basis points, ahead of prior expectations for just a 50 basis point hike.
- Tuesday's sell-off solidifies the S&P 500's bear market, which it officially entered on Monday.
US stocks traded mostly lower on Tuesday, extending their two-day decline to about 5% as the S&P 500 solidified its new bear market regime.
The heightened volatility in the stock market comes as investors fret about an expected sizable increase in interest rates on Wednesday when the Federal Reserve concludes its meeting of the Federal Open Market Committee.
The Fed was previously expected to raise interest rates by 50 basis points, but following Friday's hot CPI inflation report, the central bank is now expected to raise interest rates by 75 basis points. Though, there's no telling if the interest rate hike will help cool inflation, which is mainly being driven by supply side constraints, rather than demand.
Meanwhile, those higher interest rates could have a chilling effect on the economy and push mortgage rates to levels not seen in many years.
Here's where US indexes stood at the 4:00 p.m. ET close on Tuesday:
- S&P 500: 3,735.68, down 0.37%
- Dow Jones Industrial Average: 30,364.83, down 0.5% (151.91 points)
- Nasdaq Composite: 10,828.35, up 0.18%
Goldman Sachs is now warning investors that the chances of a US recession are on the rise as the Fed is likely to hike interest rates by 75 basis points at its next two meetings. Traders now expect the Fed to hike rates to close to 4% in 2023.
But perhaps what's worse than high inflation, and even a recession, is a prolonged period of stagflation, which the Fed is trying to prevent with its interest rate hikes. Over 80% of investors now expect stagflation to shock the stock market within the next year, according to Bank of America.
Amid the ongoing chaos in the cryptocurrency market, with bitcoin briefly falling below $22,000 on Tuesday, Tether's stablecoin barely lost its dollar peg again. Tether's stablecoin hit $0.9975 after the Celsius crypto network halted withdrawals over the weekend.
Coinbase stock fell on Tuesday after the company was downgraded by JPMorgan, citing the broad decline in the cryptocurrency market. Separately, Coinbase announced a round of deep job cuts, impacting about 18% of its workforce.
Bitcoin losses piled up for companies that added the cryptocurrency to its balance sheet. MicroStrategy, Tesla, and Block have a combined unrealized loss of more than $1 billion in bitcoin, based on Tuesday's prices.
West Texas Intermediate crude oil fell as much as much as 2.87% to $117.46. per barrel. Brent crude, oil's international benchmark, dropped as much as 2.12% to $119.68.
Bitcoin rose as much as 1.47% to $22,393. Ether prices jumped as much as 3.94% to $1,218.
Gold fell as much as 1.39% to $1,806.30 per ounce. The yield on the 10-year Treasury surged 13 basis points to 3.50%.