Stock prices in the U.S. and Europe plunged on the 13th (local time) due to concerns over an economic slowdown as the U.S. is expected to raise interest rates sharply to curb prices.
The Dow Jones Industrial Average fell 876.05 points (2.79%) to close at 35,516.74 on the New York Stock Exchange. The Dow Jones index fell more than 500 points for the third day after falling 638.11 points and 880.00 points on the 9th and 10th, respectively, the Market Watch reported.
The NASDAQ index, which is centered on technology stocks, plunged 4.68% on the same day, and the S&P 500 index, which is centered on large-cap stocks, also fell 3.88% to 3749.63. In particular, the S&P 500 index has technically entered a “weak market” as it has fallen 22% lower than its recent high of 4796.56 on January 3, according to Reuters. The stock market evaluates that if the index falls to a 20% lower level than the high point, it has entered a bear market. It is the first time that the index has entered a bear market since March 2020, the beginning of the COVID-19 pandemic.
Europe’s major stock index, which closed earlier, also fell by 1.5 to 2.6%. Britain’s FTSE 100 index closed 1.53% lower than last weekend, while the Dax index of the Frankfurt stock market and the CAC 40 index of Paris, France, fell 2.43% and 2.67%, respectively.
Experts pointed out that the plunge in stock prices in the U.S. and Europe is due to growing concerns over an economic slowdown caused by a sharp rate hike as the outlook that U.S. inflation may have reached its highest level in April was broken. The U.S. consumer inflation rate for May, announced over the weekend, was 8.6 percent annually, higher than market experts expected. This breaks the possibility of a slowdown in inflation, which has been implicitly assumed by many investors. Ross Mayfield, an investment strategy analyst at the U.S. investment bank Baird, pointed out in <Reuters> that the market has attempted to rebound because it believes inflation has reached its highest level.
As a result, the Federal Reserve, the U.S. central bank, is expected to raise interest rates by 0.75 percentage points soon, not the previous estimate of 0.5 percentage points. Goldman Sachs, a U.S. investment bank, predicted that the Fed will raise interest rates by 0.75 percentage points for June and July in a row. According to the interest rate prediction system of the U.S. financial company CME, the Fed’s chances of raising interest rates by 0.75 percent in June rose from 30% in the morning to 96% that night. The Fed will hold a Federal Open Market Committee (FOMC) from 14th to 15th to decide the extent of the rate hike.
The value of U.S. government bonds fell sharply due to the possibility of a significant rate hike. The yield on 10-year U.S. government bonds once rose to 3.371%, the highest level since April 21, 2011, according to Market Watch. A rise in yields means that the market value of government bonds has fallen. The yield on 3-year, 5-year and 7-year government bonds recorded 3.45-3.48 percent on the same day, leading to a reversal ahead of the 10-year government bond yield. The phenomenon that the yield on short-term government bonds is higher than that of long-term government bonds appears when investors expect the economy to stagnate in the future.
Meanwhile, cryptocurrency information site CoinMarketCap said that the total market capitalization of cryptocurrency fell below $1 trillion in a year and five months as cryptocurrency prices continued to plunge, with bitcoin prices falling below $23,000 at one point.