[New York Stock Market] Recession Fears and Strong Dollar... Dow Falls Below 30,000, Nasdaq Down 1.8%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange closed lower on the 23rd (local time) amid growing fears of a global economic recession due to consecutive interest rate hikes and a strong dollar. With the Federal Reserve's (Fed) high-intensity tightening expected to continue for the time being, turmoil in the global financial markets intensified following the UK government's tax cut proposal. The Dow Jones Industrial Average, composed of blue-chip stocks, fell to its lowest point this year.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 29,590.41, down 486.27 points (1.62%) from the previous session. Falling below the 30,000 mark, it broke through the June low and recorded the lowest level of the year. This was the first time the Dow fell below 30,000 since June 17. The S&P 500, centered on large-cap stocks, closed at 3,693.23, down 64.76 points (1.72%), and the Nasdaq, focused on technology stocks, ended the day at 10,867.93, down 198.88 points (1.80%).

By sector, the discretionary consumer goods sector, which is heavily impacted during recessions, took a hit. Leading cruise stocks Royal Caribbean and Carnival closed down 5.49% and 7.16%, respectively, compared to the previous session. Energy stocks also underperformed due to falling oil prices. APA slid 11.43%, and Marathon Oil dropped 10.94%. Large tech stocks also showed weakness. Tesla fell 4.59%, Apple 1.51%, and Meta 1.69%.

Investors closely monitored the simultaneous interest rate hikes by the Fed and other central banks, future outlooks, movements in government bond yields, and recession concerns.

Fed Chair Jerome Powell described the current U.S. economy of high inflation and low growth as the "new normal" during a Fed event in the afternoon. Although he did not provide specific messages regarding monetary policy, the Fed had previously indicated through its dot plot that the median interest rate would be 4.4% by the end of this year, signaling continued high-intensity tightening. The median rate is expected to rise to 4.6% next year.

Quincy Crosby of LPL Financial said, "The market is rapidly shifting from concerns about inflation to concerns about an aggressive Fed," adding, "Bond yields are rising to levels not seen in recent years." Goldman Sachs lowered its year-end forecast for the S&P 500 index from 4,300 to 3,600, a reduction of about 4%. Credit Suisse maintained its underweight stance on U.S. stocks.

In the New York bond market, the 2-year Treasury yield, sensitive to monetary policy, surpassed 4.2%, reaching its highest level in about 15 years. The long-term benchmark 10-year yield rose to 3.829% intraday but later fell to around 3.68% amid spreading recession concerns.

Concerns in the financial markets also increased negatively impacting the New York stock market after the UK government’s tax cut plan was revealed, shaking the British pound. Following the announcement, the pound's value against the dollar plummeted to its lowest level in about 30 years. Predictions that the pound-dollar parity of 1 pound = 1 dollar was imminent also emerged. Consequently, UK government bonds and Eurozone bonds were sold off simultaneously, and European stock markets closed lower.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s "fear index," surged more than 9% from the previous session, approaching the 30 level.

David Kostin of Goldman Sachs stated in an investor memo, "Most equity investors see a hard landing scenario as inevitable," and added, "They are focusing their investment strategies on the timing, scale, duration, and outlook of a potential recession." Antoine Bouvier of ING said, "All central banks are sending the same message," and evaluated, "The Fed’s tone is clear: it will continue tightening regardless of the pain inflicted on the economy."

The dollar, a representative safe-haven asset, maintained its strength. The Dollar Index, which measures the dollar's value against six major currencies, surpassed 113 on this day. This was the first time the Dollar Index exceeded 113 since May 2002.

With the dollar’s strength and growing recession fears, oil prices fell. On the New York Mercantile Exchange, November West Texas Intermediate (WTI) crude oil prices closed at $78.74 per barrel, down $4.75 (5.69%) from the previous day.