US Stock Market Key Points:
- The S&P 500, Dow and Nasdaq 100 slide to finish near their monthly lows
- FOMC members rule out the possibility of rate cuts in 2023
- All eyes continue to be on NFP data on Friday
US equity markets started the month of August with an optimistic tone, bolstered by expectations that the Fed could slow the pace of its tightening cycle amid bets that inflation had peaked, and the worst was over. But as days passed and FOMC officials made it clear that curbing rampant price pressures was their main objective, even at the cost of a weaker economy, indices wavered. In this context, the Dow and S&P 500 retreated more than 3.7% for the month. The Nasdaq 100, for its part,lost more than 5% of its value during the same period.
Today, as Wall Street continued to assess the effects of higher interest rates, US indices erased an early morning rally, finishing lower for the fourth consecutive day, a sign sentiment is deteriorating. Low market depth and comments from Fed officials such as Mester from Cleveland and Williams from New York may have helped sour the session’s mood. Both members ruled out cutting borrowing costs in 2023, while underscoring that interest rates could go above 4% next year.
In addition, despite lower mortgage demand applications and softer private US hiring numbers –signaling a probable slowdown in such sectors-, figures are not weak enough to suggest a recession and a pivot in the pace of the Fed tightening cycle.
At the close, the Dow Jones ended with a decline of 0.88% and the S&P 500 with a loss of 0.78%, hitting fresh monthly lows. Next support level of the S&P is around 3,918, the 23.6% Fibonacci retracement.
S&P 500 (SPX) Daily Chart
In terms of daily performance, all S&P 500’s sectors traded lower, with the exception of communication services that ended flat. News from companies such as Bed Bath and Beyond, Robinhood and HP may have reinforced weakness in the equity space.
Bed Bath and Beyond, which earlier in the month surged in an apparent meme stock revival, announced today a strategic plan to smooth their road ahead, which calls for new equity issuance and the closure of more than 100 stores.
On a different front, it is important to mention the behavior of gold amidst the current rising interest rates environment. Bullion has declined for five consecutive months despite being considered a hedge against inflation. Higher rates in the economy increase the opportunity cost of holding precious metals, making non-yielding assets less attractive. For this reason, XAU/USD has fallen more than 14% since April’s highs, with further losses still likely considering the Fed’s hawkish stance.
Correlation between Gold Price and US Treasury Yields (US-10Y)
Gold Monthly Chart
EDUCATION TOOLS FOR TRADERS
- Are you just getting started? Download the beginners’ guide for FX traders
- Would you like to know more about your trading personality? Take the DailyFX quiz and find out
- IG’s client positioning data provides valuable information on market sentiment. Get your free guide on how to use this powerful trading indicator here.
—Written by Cecilia Sanchez-Corona, Research Team, DailyFX