[New York Stock Market] S&P 500 Hits Year-to-Date Low Amid Strong Dollar... Dow Down 1.11%

[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 26th (local time) due to turmoil in the UK financial market, a stronger dollar, and rising government bond yields.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 29,260.81, down 329.60 points (1.11%) from the previous session. The large-cap S&P 500 index recorded 3,655.04, down 38.19 points (1.03%), breaking the year-to-date low of 3,666.77 set in June. The tech-heavy Nasdaq index closed at 10,802.92, down 65 points (0.60%).

By sector, real estate and utilities stocks underperformed. Real estate companies Ventas and Kimco Realty closed down 4.37% and 4.09%, respectively, from the previous session. Utility company AES also fell 5.48%, ranking among the worst performers of the day. Energy stocks such as ExxonMobil (-2.06%) and Chevron (-2.63%) were weak as international oil prices dropped to their lowest level since January. Leading financial stocks including Goldman Sachs, Morgan Stanley, JP Morgan, and Citi all posted declines in the 2% range.

Additionally, Lyft fell more than 3% after investment bank UBS downgraded its rating. AMC Entertainment dropped 14.52% following reports related to preferred shares under the APE name, referring to meme investors. On the other hand, major casino companies such as Wynn Resorts and Las Vegas Sands surged nearly 12% as Macau announced it would begin accepting Chinese group tourists as early as November.

Investors closely monitored the instability in the UK financial market, including the pound exchange rate, the sharp rise in government bond yields, the strong dollar, and remarks from Federal Reserve (Fed) officials.

In particular, the pound and government bond price plunges spread turmoil in the UK financial market, freezing investor sentiment from the morning. The pound exchange rate fell about 5% on the day, hitting an intraday record low of $1.03. This was due to a wave of pound sell-offs following the large-scale tax cut policy unveiled last week by Prime Minister Liz Truss’s cabinet amid global tightening and a strong dollar trend. The pound briefly rose to $1.09 but then fell back to around $1.06 after expectations that the Bank of England (BOE) would implement an emergency rate hike were dashed.

This pound weakness, combined with the Fed’s aggressive rate hikes, further boosted the dollar. The dollar index, which measures the dollar’s value against six major currencies, surpassed 114.6 intraday, reaching its highest level in 20 years. The euro also fell to its lowest value against the dollar in 20 years.

Given expectations that the Fed’s high-intensity rate hikes will continue, the dollar’s super-strength is likely to persist for some time. This could also be a negative factor for multinational companies with a large proportion of overseas earnings. Michael Wilson, chief equity strategist at Morgan Stanley, warned in a report that day, “Historically, dollar strength has led to financial or economic crises,” adding, “If there is a time to be cautious about what might collapse, it is now.” Ben Inker of GMO analyzed in a report that “the strong dollar is a headwind not only for the U.S. stock market but also overseas.”

Fed officials’ remarks suggesting continued tightening also followed. Susan Collins, president of the Boston Federal Reserve Bank, pointed out that before easing rate hikes, there must be concrete evidence that inflation is clearly slowing. However, she also added that inflation is likely near its peak.

Government bond yields surged in the bond market. The sharp rise in UK government bond yields pushed up European yields as well as U.S. yields. The U.S. 10-year Treasury yield briefly exceeded 3.9% intraday, marking the highest level since 2010. The 2-year yield, sensitive to monetary policy, also surpassed 4.3%, the highest since 2007.

Economic indicators released on the day were weak. The Chicago Fed National Activity Index for August fell to zero, indicating economic slowdown. The Dallas Fed’s September manufacturing index also dropped further to -17.2 from the previous month.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s “fear gauge,” jumped more than 7% from the previous session, hovering around the 32 level.

Market experts warned that the risk of a hard landing is increasing due to simultaneous high-intensity tightening by multiple countries. Richard Hunter of Interactive Investor said, “Concerns about a global recession due to the strong dollar are putting pressure on the overall stock market,” adding, “The risk of a hard landing due to excessive tightening by various countries is growing.” Jeremy Siegel, a professor at the Wharton School, criticized the Fed’s flawed inflation response that day, stating, “Honestly, I think Chairman Powell should apologize to the American people for the poor monetary policy the Fed has pursued.”

International oil prices fell to their lowest level since early January. On the New York Mercantile Exchange, November West Texas Intermediate (WTI) crude oil closed at $76.71 per barrel, down $2.03 (2.58%) from the previous session.