Factors Behind Recent US Market Decline

Paraphrased and Expanded Article:

On Monday, the US stock markets experienced a significant downturn, with multiple factors contributing to the negative sentiment. The Dow Jones Industrial Average fell by 400 points, closing below the 42,000 mark. Similarly, the S&P 500 dropped by 1%, and the Nasdaq Composite declined by 1.2%, ending below 18,000¹.

Several key elements played a role in this market decline:

1. Tech Sector Sell-Off: Most of the major technology companies, except Nvidia, faced a rough day. Alphabet’s shares fell by 2.4% after a court ruling required it to lift restrictions on developers setting up rival marketplaces to its Google Play Store. Apple saw a 2.3% drop following Jefferies’ comments that investor expectations for the latest iPhone were overly optimistic. Amazon’s stock also declined by 3.1% after a downgrade from Wells Fargo¹.
2. Rising Oil Prices and Middle East Tensions: Brent crude oil prices surged above $80 per barrel, reaching their highest level since August, due to escalating uncertainties in the Middle East following Israel’s response to recent attacks by Iran. West Texas Intermediate (WTI) crude also saw a nearly 4% increase, hitting $77 per barrel¹.
3. Treasury Yields Surpassing 4%: The benchmark 10-year Treasury yield rose by more than 4 basis points to 4.02%, marking the first time since August that it exceeded 4%. The two-year yield also jumped by up to 10 basis points to 4.02%. This underperformance in shorter-dated Treasuries caused a brief re-inversion of a key part of the yield curve, which historically slopes upward with longer notes paying higher yields¹.
4. Uncertainty Over Fed Rate Cuts: For the first time since August 1, money markets implied fewer than 50 basis points of rate reductions through the end of the year. Traders now see just an 80% chance of a 25 basis point rate cut by the Federal Reserve in November. This shift in expectations is driven by a more optimistic economic outlook, leading to a repricing of the Fed’s actions¹.
5. Economic Data and Market Sentiment: Strong employment data released in September has led several Wall Street banks, including JPMorgan and Bank of America, to abandon their forecasts for a 50 basis point rate cut by the Fed in November. Economists at Citigroup and TD Securities now expect a quarter-point cut instead. Morgan Stanley’s Michael Wilson has also adjusted his view on cyclical stocks, noting the impact of the strong payroll data and the likelihood of further rate cuts¹.

These factors collectively contributed to the market’s negative performance on Monday, reflecting a complex interplay of economic indicators, geopolitical tensions, and investor sentiment.

Source:

• Original article from CNBC TV18: Five factors that caused pain in the US markets on Monday¹.

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