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Bond tapering fears resurface, Wall Street stocks fall
PUBLISHED ON 2021-09-29 02:46:00 EST Yashasvini
-- Bond yields rose to their highest for the sixth consecutive day
-- Benchmark indices fell by nearly 1.5% on Tuesday
-- Investors pulled out of technology stocks
Wall Street witnessed a tumbledown after investors pulled money out of the technology stocks. Bond yields rose for the sixth consecutive day on Tuesday, settling at 1.534%, compared with 1.482% Monday.
On Thursday the Dow Jones Industrial Average was on track to almost erase its entire gains over the past three months and deliver the worst monthly decline since October. The Dow closed 1.6% lower to reach 34,300 and is up less than 0.1% for the quarter.
The Nasdaq Composite Index witnessed its worst session since March 18 after tumbling down 2.8% to end 14,546, on a preliminary basis. The S&P 500 index declined 2% on Tuesday to reach around 4,353.
Traders have been putting money into technology stocks for over a decade but in the past week, that activity has faced several hindrances.
The U.S. Federal Reserve announced that it would cut down its massive bond-buying program but did not reveal a specific date. It kept the benchmark interest rates near zero and assured the market that the current pace of asset purchases would be maintained, but hinted that the interest rates could be hiked sooner than expected.
Investors believe that the Fed’s outlook stands in line with the significant economic growth witnessed this year but many are worried about the stability of this growth in the absence of the central bank’s fiscal support.
FOLLOWING THE TUMBLEDOWN TRAIL
Amid surging inflation, and the consumer price index, increasing to 5.3% from a year earlier and 0.3% from July, investors are skeptical about a positive economic outlook. The consumer price index measures the price average of consumer goods and services, such as transportation, food, and medical care.
The rapidly spreading delta variant of COVID-19 hasn’t made it any easier to predict the economic outlook. Investors are used to the free credit that has been floating the market but the broad sell-off on Tuesday indicates that realization is slowly dawning on them that the spoon-feeding needs to stop once the economy reaches a certain level of stability.
Meanwhile, the Evergrande crisis in China has kept investors on the edge. The Chinese property giant failed to meet a deadline to make an interest payment to offshore bondholders, and now has 30 days to make the payment before it falls into default.
Shares of companies like Facebook, Alphabet, and Microsoft, fell more than 3.5% apiece.
Higher bond yields drew investors into the U.S. dollar, which strengthened against major currencies from the euro to the Swiss franc. The dollar hit a 10-and-a-half month high, rising by 0.31%, buoyed by surging Treasury yields. The euro was down 0.08% to $1.1685.
Brent oil fell after topping $80 per barrel for the first time in almost three years, as a five-day rally ran out of steam.
Brent crude futures settled at $79.09 per barrel, down 0.6%. U.S. crude oil futures settled at $75.29 per barrel, down 0.2%.