Editor
The Dow Jones has officially entered a bear market, raising the chances of a market downturn.
Over the past few weeks, the energy select sector has dropped by 13%, the worst since January, yet this week the West Texas Intermediate rose about 1.7% to $77 per barrel. Although the oil and energy sectors improved on Tuesday morning, the Wall Street main indexes did not.
The Dow Jones Industrial Average officially entered the bear market on Monday, September 26th, after falling 20% from its all-time high. All the main indexes are officially in a bear market, which adds more pressure on the Federal Reserve monetary policy makers’ decisions.
In the Tuesday session, the Dow Jones index dropped by 0.69%, doubling its losses of 0.3% in the morning. The S&P slides back by 0.41% rebound from a 0.6% decline in mid-session. The tech-heavy Nasdaq also fell by 0.18%.
In the bond market, the 10-year treasury yield in the United States has risen to 3.96 percent, closing in on its highest level this year.
So what’s next? It’s official that the main index is in a bear market and in need of correction. It’s more likely to see the market weaken in the next two quarters. On top of that, with higher interest rates, based on recent data and the higher inflation pressure, the likelihood of a full percentage interest hike is rising as we speak.
It is too hard for a soft economic landing at this point. Investors are making a major sell-off as the market volatility increases. On the other hand, the USD currency is still gathering momentum compared to other currencies. The Euro rebounded but remains at a lower level. The sterling pound crashed after the Bank of America announced that it was losing its confidence. From the investor’s perspective, being in a bear market means two things: a large number of people will start selling their risk stocks while others will hold their assets if they believe they will rebound when the correction ends.
The major problem that the economy is facing now is the supply distribution problems as fears of Russian and American escalation rise after the recent announcements of both countries. The tension between the west and Russia has peaked at a dangerous level which could cause a global economic and humanitarian crisis.
Nonetheless, none of Tuesday’s news was negative; economist surveys show an increase in US consumer confidence. The US dollar remains at its highest level, gaining confidence and generating gains. As for the inflation rate, over the past 12 months, the inflation rate dropped significantly in September. Adding more optimism to a higher economic outlook Consumer confidence in the US posted its highest level since April and the second consecutive monthly increase. Consumers in the United States are more comfortable with prices now, despite an all-time high inflation rate of 9.1%.
In terms of the market outlook, the Federal Reserve will take into account all the mentioned data and decide how aggressive or soft the next hike will be.
