Wall Street slumps as sinking British pound rattles markets | CNN Business (2024)

The New York Stock Exchange on September 23.

US stocks closed lower on Monday on market fears over a strong US dollar.

The Dow dropped more than 300 points and entered a bear market—down 20% or more from its recent high—for the first time since the beginning of the pandemic.

The British pound hit a record low against the US dollar on Monday. The Federal Reserve’s aggressive hiking policy and Britain’s recent tax cut announcements caused the dollar to surge. The euro also hit its lowest value versus the dollar since 2002.

Investors worried about the dollar’s rally, Societe Generale’s Kit Juckes noted on Monday, as large surges historically occur alongside global economic crises.

The Dow closed down 326 points, or 1.1%.

The S&P 500 fell by 1%.

The Nasdaq Composite closed 0.6% lower.

As stocks settle after the trading day, levels might still change slightly.

Autumn is here. The weather’s a bit cooler. Leaves will soon begin to fall. Everyone’s eating and drinking pumpkin spiced treats. But one thing isn’t changing on Wall Street: Investors are still banking on more aggressive rate increases from the Federal Reserve.

The Fed has already implemented three consecutive three-quarters of a percentage point interest rate hikes this year. The odds that a fourth one will be announced at the central bank’s next meeting on November 2 are now nearly 80%, according to fed funds futures on the CME.

Traders are also pricing in a nearly 80% probability of a half-point hike at this year’s last (scheduled, at least) Fed meeting on December 14. If both those increases occur, the Fed’s key short-term rate will end 2022 at a range of 4.25% to 4.5%.

To put that into perspective, keep in mind that rates started 2022 0% to 0.25%. Back then, the Fed (and investors) still held out hope that soaring inflation would not be a persistent problem.

So much for that.

Traders working on the floor of theNewYorkStockExchangeon Monday September 26.

Stocks were broadly in the red in midday trading Monday…and at their lows of the day…as investors continued to worry about inflation around the world.

The British pound tumbled to its lowest level against the US dollar ever, and the Bank of England tried to reassure global markets that it will remain on top of rapidly changing economic developments…especially after new Prime Minister Liz Truss unveiled a new plan to cut taxes that will largely benefit the wealthy and corporations.

Global markets are in a tizzy Monday after UK Prime Minister Liz Truss revealed Friday a proposal to cut taxeswhile ramping up borrowing. Investors panicked, worrying the unorthodox approach could feed inflation — and the British pound plunged to a new record low against the US dollar.

Now, UK policymakers are trying to calm everybody down.

As my colleague Julia Horowitz reports, the Bank of England released a statement Monday assuring it is “monitoring developments in financial markets very closely” — and that it will examine the effect Truss’ plans would have on inflation at its next meeting in November, saying it would “not hesitate to change interest rates as necessary.”

The UK Treasury also joined the “keep calm and carry on”effort, releasing its own statement saying finance minister Kwasi Kwarteng will detail the government’s plans to ensure the sustainability of the UK debt over the medium term on November 23.

You can’t blame them for trying. But there’s a lot for investors to be nervous about right now, and the dramatic market reaction only underscores just how tense things are.

“The initial reaction in the markets, with the pound falling again after it regained some ground, suggests that the issue may not be put to bed yet,” Paul Dales, chief UK economist at Capital Economics, told Julia.

Read more here.

The Venetian Macao resort and casino, operated by Sands China Ltd., a unit of Las Vegas Sands Corp., left, and the Galaxy Macau casino and hotel, developed by Galaxy Entertainment Group Ltd.

Casino owners who have properties in the Asian gambling mecca of Macao hit the jackpot Monday, thanks to news over the weekend that the city will soon start letting tourist groups from mainland China return after nearly three years of restrictions due to the Covid-19 pandemic.

Macao, which has glitzy, Las Vegas-esque casinos on its Cotai Strip, is a special administrative region of China and former Portuguese colony where gambling is legal. The news that Chinese consumers will be able to head back to the tables and slot machines later this year should give a big lift to the gaming companies that operate there.

Shares of American casino giants Wynn Resorts (WYNN) and Las Vegas Sands (LVS), which both own properties in Macao, soared nearly 12% in midday trading. Melco Resorts & Entertainment (MLCO), which is headquartered in Hong Kong but has a Nasdaq listing, skyrocketed almost 25%.

Pedestrians walk past Bank of England in London on September 22.

The Bank of England issued a statement Monday saying it is “is monitoring developments in financial markets very closely” after the pound hit a record low against the dollar, but stopped short of an emergency interest rate hike.

The central bank said it will make a full assessment of the government’s tax plans and the impact of the pound’s plunge at its next scheduled interest rate meeting in November and will “act accordingly.”

The bank said it would “not hesitate to change interest rates as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit.”

Is the worst finally over the FAANGs of tech?

The Nasdaq, which includes Facebook owner Meta Platforms (META), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Google parent Alphabet (GOOGL) among its top stocks, was up nearly 1% Monday and poised to break a four-day losing streak — even as the broader market fell again.

Tech stocks have taken a beating this year, with the Nasdaq down nearly 30% in 2022 as analysts rapidly cut earnings estimates due to concerns about the slowing global economy hurting sales.

According to data from FactSet, there have been notable downward revisions for the forecasts of Meta, Alphabet and Amazon since the end of June. Meanwhile Intel (INTC) and other chip stocks have also dragged down the Nasdaq, as Wall Street has slashed earnings forecasts for semiconductors.

But the worst of the earnings slowdown just might, finally, be priced in.

FactSet also noted that analysts are predicting the biggest jump in stock prices for the communications services sector (which includes Meta and Alphabet) as well as the tech sector, a group that has Apple and Microsoft (MSFT) among its top stocks.

Analysts expect the communication services sector to soar nearly 38% over the next 12 months, according to FactSet, while the information technology sector is forecast to rise more than 31%.

A screenshot showing Walmart Land, one of the immersive experiences in the Roblox metaverse launched by Walmart.

Roblox (RBLX) investors haven’t had a lot to cheer on in the real world of Wall Street lately. The metaverse company’s stock price has plunged nearly 65% this year, and it’s about 75% below the all-time high it set in November 2021 just a few months after its stock market debut.

But there was one bit of good news Monday. Roblox rose almost 3% after the company announced a partnership with Walmart (WMT).

The retail giant launched two “isles” within the gaming platform: Walmart Land and Walmart’s Universe of Play. Walmart said in a press release that the Roblox deal is being done with the “next generation of customers in mind,” a clear nod to the Gen Z users and even younger Generation Alpha kids that are fans of Roblox.

But Roblox clearly needs the boost more than Walmart. The Arkansas-based retail king is a mega profitable company that is worth more than $350 billion and has annual sales that are expected to top $600 billion this fiscal year. Roblox, on the other hand, is losing money. And there are growing concerns that the metaverse may not live up to the financial hype.

The pound’s fall has analysts and traders speculating that the British currency could reach parity with the US dollar for the first time ever.

Bankers at Nomura said they expect the pound, which hit a record low of $1.03 early Monday, to reach parity by the end of November and then keep falling to 97 cents by the end of the year.

“This is a fundamental balance of payments crisis, with politicians hoping it will eventually just calm down,” analysts said, per Reuters. “Hope is not a strategy, and markets are reflecting that.”

Options market pricing indicatesthere is now a 60% probability the pound will hit $1 before the end of this year, compared to 32% on Friday, according to Bloomberg News.

“Unless something can be done to address these fiscal concerns, or the economy shows some surprisingly strong growth data, it looks like investors will continue to shun sterling,” Antoine Bouvet and Chris Turner at ING said in a research note on Friday, when the pound began its decline. “We think the market may be underpricing the chances ofparity.”

People walk outside of the New York Stock Exchange on September 23.

US stocks were mixed on Monday morning after the British pound plunged to a new record low against the US dollar. UK tax cuts announced Friday and another aggressive rate hike by the Federal Reserve last week caused the US dollar to surge as the pound sterling fell at one point by 4% to an all-time low of $1.038.

Investors are worried that this could hurt corporate earnings. About 30% of all S&P 500 companies’ revenue is earned in markets outside the US. During the last earnings season, a number of companies said that the strength of the dollar had already hurt revenue growth.

The Dow fell by 85 points, or 0.3%, on Monday morning.

The S&P 500 was down 0.1%.

The Nasdaq Composite was 0.3% higher.

U.S. Federal Reserve Board ChairmanJeromePowellholds a news conference after Federal Reserve raised its target interest rate by three-quarters of a percentage point in Washington D.C., on September 21.

Global bond yields are soaring as central banks around the world are raising interest rates to fight rampant inflation.

The Federal Reserve jacked up short-term rates by three-quarters of a percentage point last week for the third consecutive time. And investors are betting a fourth rate hike of that magnitude is on the way in early November.

That’s why US bond yields are surging. The 2-year Treasury is at its highest level in 15 years, at about 4.2%. Meanwhile, the 10-year Treasury yield has spiked to 3.76%. It hasn’t been that high since April 2010.

It appears that investors FINALLY believe that Fed chair Jerome Powell has traded in his monetary policy dove wings for the time being and is now firmly entrenched in the inflation hawk camp of central bankers. Getting inflation under control is priority A through Z for the Fed…even if it means a spike in the unemployment rate and slowdown in the economy.

To that end, the yield for the 10-year Treasury remains well below the 2-year yield, despite the recent uptick in long-term rates. That phenomenon is called an inverted yield curve, and it is often a sign that a recession is coming. The Fed may still be holding out hope for a proverbial soft landing. But the bond market seems to disagree.

“This soft landing doesn’t add up to us. We think quashing inflation that quickly…would take a recession – a roughly 2% hit to economic activity and 3 million more unemployed. We think the Fed is not only underestimating the recession needed but ignoring that it’s logically necessary,” said strategists at the BlackRock Investment Institutein a report Monday.

US stock futures pointed to a lower market open Monday as investors weighed a slew of rate hikes from central banks globally and a new low for the British pound against the dollar.

TheBritish pound crashed to a record low against the US dollar as investors panicked about the UK government’s massive tax-cut plans. And last week central banks from the US Federal Reserve to the Bank of England announced rate hikes in their fight against inflation.

The market is worried that aggressively increasing interest rates could lead to recession.

Dow futures were down 0.2%, or 49 points, in premarket trading.

S&P 500 futures were also off 0.2%, while Nasdaq futures were flat.

Traders work on the floor of the New York Stock Exchange during afternoon trading on September 13.

September has been a miserable month for the stock market. Investors are nervous about the Federal Reserve’s aggressive interest rate hikes potentially leading to a recession. Economic and political turmoil in the UK and Europe isn’t helping.

Unsurprisingly, the CNN Business Fear & Greed Index —which measures seven indicators of market sentiment — is in Extreme Fear territory. The VIX (VIX), a gauge of market volatility that is one of the index’s indicators, surged 8% Monday morning and is up nearly 80% this year.

But the intense fear (and loathing?) on Wall Street might actually be a good sign. When investors get too negative, that tends to be a sign that a bottom is near.

In fact, the latest survey by the American Association of Individual Investors (AAII) late last week showed investor sentiment is at its lowest level since March 2009 — which is when stocks bottomed during the bear market that happened during the Great Recession.

One strategist suggested the current anxiety may also wind up being a bottom for stocks.

“Investor sentiment is extremely negative about stocks which has been an excellent contrary indicator,” said Bill Stone, chief investment officer with The Glenview Trust Company, in a report Monday, adding that “the negative reading argues for at least a short-term bounce from oversold conditions.”

Stone also said investors should hold their noses and buy even when the headlines are terrible.

“Investors waiting for better economic data as a signal to get reinvested in stocks are likely to be disappointed,” he wrote. “Historically, the S&P 500 has bottomed before the economy, and the initial price rebound in stocks at the start of a new bull market is explosive.”

The Chancellor of the ExchequerKwasiKwartengspeaks during the Government's Growth Plan statement at the House of Commons, in London, Britain, on September 23.

The United Kingdom’s big tax-cutting gamble will benefit the rich far more than millions of people on lower incomes.

The UK Treasury estimates that the tax cuts will wipe £45 billion ($48 billion) off annual government revenues over the next five years. That’s the biggest tax cut in half a century, according to the Institute for Fiscal Studies.

While all households will see their income tax rates fall, and have their energy bills capped at an average of £2,500 a year ($2,689), it will be the richest people that benefit most.

UK finance minister Kwasi Kwarteng slashed the top rate of income tax — paid by those earning over £150,000 ($161,327) — to 40% from 45%.

That will put an average £10,000 ($10,755) in the pockets of the roughly 600,000 people currently paying the highest rate of tax, or just over 1% of adults, the IFS calculated in a Friday report. Those on incomes over £1 million ($1.08 million) will gain an extra £40,000 ($43,021) a year.

“A small number of extremely high-income individuals will gain so much,” the independent think tank said.

The New York Stock Exchange seen during afternoon trading on September 13.

Investors are waking up to the harsh reality of just how much pain the economy mayhave to endure as the Federal Reserve continues its fight against stubbornly high inflation.

The Fed darkened its tone at lastweek’s policy meeting, warning of serious economic hardship ahead, and markets finally took the central bank at its word.

The S&P 500, already in a bear market, experienced another major downswing on Friday. The Dow fell briefly into bear territory and closed at its lowest level since 2020.

But while investors have wavered between whether the Fed will achieve a “hard” or “soft” landing, there’s a third, in-between possibility where everything feelskind ofbad for a prolonged period of time. At this point, that economic purgatory may be investors’ best hope.

The Fed has had the same goal since it began hiking interest rates to fight inflation in March. It wants to achievea soft landing— that Goldilocks ideal of cooling the economy enough to bring down prices but not enough to cause a recession. But the idea has grown increasingly untenable as inflation rates remain stubbornly high while economic data softens.

The new aim appears to be for a so-called growth recession: A prolonged period of meager growth and rising unemployment. The pain is sharper and lasts longer than that of a soft landing, but a “growth” recession doesn’t pull the entire economy into contraction the way a proper recession would. It looks like a recession, and feels like a recession, but it isn’t a recession — at least not officially.

A cash tray holding British pound banknotes and coins in a shop in Barking, UK, on Tuesday, Sept. 13.

TheBritish pound crashed to a record low against the US dollar as investors panicked about the UK government’s massive tax-cut plans.

The plunge of nearly5% to just above $1.03 came during trading in Asia and Australia on Monday and extended a 3.6% dive from Friday, spurring predictions the pound could plunge to parity with the US dollar. It recovered slightly as European traders came online, rising back to $1.07.

Thecurrency slumpfollows British Chancellor of the Exchequer Kwasi Kwarteng’s announcement on Friday that the United Kingdom would implement the biggest tax cuts in 50 years at the same time as boosting government borrowing and spending.

The new tax-slashing fiscal measures, which include scrapping plans for an increase in corporation tax and slashing the top rate of income tax, have been criticized as “trickle-down economics” by the opposition Labour Party and even lambasted by members of the Chancellor’s own Conservative party.