The Dow Jones Industrial Average fell on Monday as investors feared rising interest rates and currency turbulence could push the S&P 500 to a new closing low for the year.
The Dow fell 276 points, or 0.9%. The S&P 500 fell 0.9% and the Nasdaq Composite fell 0.4%.
Consumer discretionary lending support to the broader market index after a surge in casino shares. Wynn Resorts jumped 12.9% and Las Vegas Sands jumped 12.5%, following news that China would allow tour groups in Macau for the first time in nearly three years.
the pound sterling fell to a record low on Monday against the US dollar, falling 4% at one point to a record low of $1.0382. Since then, the pound has fallen from its worst levels due to speculation that the The Bank of England may have to raise rates more aggressively to quell inflation.
The Federal Reserve’s aggressive hike campaign, coupled with the UK tax cuts announced last week, have caused the US dollar to soar. The euro hit its lowest level against the dollar since 2002. A rising dollar could hurt profits for US multinationals and also wreak havoc on world trade, with much of it traded in dollars.
“Such US dollar strength has historically led to some type of financial/economic crisis,” Michael Wilson, chief US equity strategist at Morgan Stanley, wrote in a note. “If ever there was a time to watch for something to break, this would be it.”
Traders are watching the S&P 500 for any break below its bear market low. The S&P’s closing low for the year in June was 3,666.77. It closed Friday at 3,693.23 after briefly trading below that level. The intraday low of the benchmark index for the year is 3,636.87. Any trading below those levels could lead to more selling in the market.
On Friday, stocks ended a brutal week with the Dow blue-chip finding a new intraday low for the year and closing down at 486 points. The broad-market S&P 500 temporarily broke below its June closing low and ended down 1.7%. The Nasdaq Tech Composite lost 1.8%.
Another massive rate hike by the Federal Reserve last week was the catalyst for the markets’ latest leg down. The central bank indicated it could raise rates as much as 4.6% before backing down. The forecast also shows that the Fed plans to be aggressive this year, raising rates to 4.4% before the end of 2022.
Bond yields soared after the Fed enacted another 75 basis point rate hike. 2-year and 10-year Treasury rates hit highs not seen in more than a decade. On Friday, Goldman Sachs cut its end-of-year goal for the S&P 500 at 3,600 from 4,300.
Rates rose again on Monday with the 2-year Treasury topping 4.29% at one point in the day.