The Dow Jones Industrial Average fell on Monday as investors worried surging interest rates and foreign currency turmoil could push the S&P 500 to a new closing low for the year.
The Dow fell 120 points, or 0.4%. The S&P 500 dipped 0.2%, and the Nasdaq Composite advanced 0.4%.
Consumer discretionary lent support to the broader market index after a surge in casino stocks. Wynn Resorts jumped 12.9%, and Las Vegas Sands was 12.5% higher, following news that China would allow tour groups in Macau for the first time in nearly three years.
The British pound dropped to a record low on Monday against the US dollar. Sterling at one point fell 4% to an all-time low of $1.0382. The Federal Reserve’s aggressive hiking campaign, coupled with UK’s tax cuts announced last week has caused the US dollar to surge. The euro hit the lowest versus the dollar since 2002. A surging greenback can hurt the profits of US multinationals and also wreak havoc on global trade, with so much of it transacted in dollars.
“Such US dollar strength has historically led to some kind of financial/economic crisis,” wrote Morgan Stanley’s Michael Wilson, chief US equity strategist, in a note. “If there was ever a time to be on the lookout for something to break, this would be it.”
Traders will be closely watching the S&P 500 on Monday for any break below its bear market low. The S&P’s low close for the year in June was 3,666.77. It closed Friday at 3,693.23 after trading briefly below that level. The benchmark’s intraday low for the year is 3,636.87. Any trading below those levels could drive more selling in the market.
On Friday, stocks ended a brutal week with the blue-chip Dow finding a new intraday low for the year and closing lower by 486 points. The broad-market S&P 500 temporarily broke below its June closing low and ended down 1.7%. The tech-heavy Nasdaq Composite lost 1.8%.
Another super-sized rate hike by the Federal Reserve last week was the catalyst for the latest leg downward in markets. The central bank indicated it could raise rates as high as 4.6% before pulling back. The forecast also shows the Fed plans to be aggressive this year, hiking rates to 4.4% before 2022 ends.
Bond yields soared after the Fed enacted another rate hike of 75 basis points. The 2-year and 10-year Treasury rates hit highs not seen in over a decade. On Friday, Goldman Sachs slashed its year-end target for the S&P 500 to 3,600 from 4,300.
Rates were surging again on Monday with the 2-year Treasury topping 4.29% at one point in the day.
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