[New York Stock Market] Wall Street Tycoon's 'Recession' Warning Leads to Decline... Nasdaq Down 2%

[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 6th (local time) as concerns about an economic recession poured in, centered around Wall Street heavyweights. The S&P 500 index, focused on large-cap stocks, slipped for the fourth consecutive trading day.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,596.34, down 350.76 points (1.03%) from the previous session. The Dow's decline over the past two days exceeds 830 points. On the same day, the S&P 500 index closed at 3,941.26, down 57.58 points (1.44%), and the tech-heavy Nasdaq index ended at 11,014.89, down 225.05 points (2.0%).

By sector, all S&P 500 sectors except utilities declined. Particularly, sectors sensitive to recession such as media, technology, and energy saw notable drops. International oil prices fell to their lowest level since the end of last year, with leading energy stock ExxonMobil closing down 3.06% from the previous session. Marathon Oil dropped 3.75%, and Occidental Petroleum slid 3.35%.

Paramount Global plunged nearly 7% following a warning on fourth-quarter advertising revenue. Peer content companies Netflix and Disney fell 2.25% and 3.79%, respectively. Morgan Stanley declined 2.52% amid reports of a 2% workforce reduction. Conversely, Textron, which secured a $70 billion next-generation helicopter contract from the U.S. military, rose 5.27%.

Investors closely monitored recession concerns expressed by Wall Street financial executives, along with the recent spread of the possibility of prolonged tightening by the Federal Reserve (Fed) and movements in Treasury yields.

Jamie Dimon, CEO of JP Morgan Chase, known as the "Emperor of Wall Street," appeared on CNBC's Squawk Box that day, reiterating recession concerns by stating, "Inflation is eating everything." Having previously warned of an "economic hurricane," he diagnosed that high inflation and other factors could derail the economy and lead to a U.S. recession. He also noted that even if the benchmark interest rate rises to the 5% range, it might still be insufficient to curb inflation.

David Solomon, CEO of Goldman Sachs, also expressed caution at a conference held in New York and in foreign media interviews on the same day, saying, "We may be entering a rough period." He suggested the possibility of a U.S. recession in 2023 and added, "Economic activity levels may be somewhat more constrained in a harsher economic environment." Brian Moynihan, CEO of Bank of America (BoA), also diagnosed signs of weak consumption as spending has recently slowed.

In the New York bond market, Treasury yields all slipped. The 10-year U.S. Treasury yield fell to as low as 3.508% during the session. The 2-year yield, sensitive to monetary policy, dropped to 4.358%. The inversion of the yield curve, where the long-term 10-year yield exceeds the short-term 2-year and 3-month yields, continues. This is generally regarded as a precursor to a recession.

The economic indicators released that day were weak. The U.S. trade deficit in October was $78.2 billion, up 5.4% from the previous month. The deficit expansion was attributed to the largest export decline in four months.

The dollar showed strength. The Dollar Index, which measures the value of the dollar against major currencies, rose more than 0.2% from the previous session to 105.5. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," jumped more than 6.6% from the previous session to the 22 level.

Investors remain hopeful for a December Santa rally but express concerns over heightened recession fears and prolonged tightening uncertainties. Fed tightening and recession worries inevitably exert downward pressure on the stock market. Chris Senyak, an analyst at Wolfe Research, said the bear market is not over yet and projected an additional 25-35% decline from current levels.

Stephanie Link, Chief Investment Strategist at HighTower, said, "Much depends on next week's Consumer Price Index (CPI)," predicting that the CPI will have a greater impact on the stock market than the Fed meeting. The November CPI, which will confirm whether inflation is easing, will be released on the 13th, just before the Fed's rate decision.

Currently, the market expects the Fed to take a big step by raising rates by 0.5 percentage points at the December FOMC meeting next week. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market is pricing in more than a 77% chance of a big step in December. This increase is a moderation compared to the four consecutive giant steps (0.75 percentage point hikes) taken until last month. However, as Fed Chair Jerome Powell previously indicated, while the size of the hikes is expected to shrink, the terminal rate is likely to be higher.

International oil prices fell to their lowest level since the end of last year amid growing fears of a global economic recession. On the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude for January delivery closed at $74.25 per barrel, down 3.5% ($2.68) from the previous session. It marked the third consecutive day of decline, hitting the lowest level since December 23 of last year. The total drop over the past three trading days reached 8.58%.

This downward trend in oil prices is attributed to increased global economic uncertainty and a bleak economic outlook for 2023. Prolonged Fed tightening is cited as a factor that could lower medium- to short-term growth prospects and trigger a decline in oil demand. Additionally, China's slow progress in easing COVID-19 lockdowns is also exerting downward pressure on oil prices. The U.S. Energy Information Administration (EIA) lowered its price forecasts for WTI and Brent crude in its monthly report released that day.