Stocks tumble, dollar soars and bonds plunge as recession fears grow

The Dow dropped over 120 points right out the gate and just continued dropping all day long reaching a low of more than 800 down by 3 pm before starting a climb that ended with a close down 486.  The Dow closed below 30,000 for the first time since the downturn began and still remains the only one of the major indexes not to confirm a bear market but did come dangerously close today as another 150 points would have done it, which it did reach intraday.  

But there was much to add to worries of global recession as several European countries announced central bank rate hikes and with the still chilling Fed goal to whip inflation of a 4.6% funds rate by late next year. The dollar hit a 20 year high and the 10 Treasury today reached 1.426% bringing the yield curve inversion to a minus 58 vs a previous 51.6 basis points. This means the 2 year Treasury now pays almost 0.6% more than the 10 year, and the 10 year paying less than the 2 year has traditionally been considered a predictor of coming recession. No volume data was included in the report below but per the CBOE, volume was way above average at 13.3 billion. 

Fri 9-23-22  September 23, 2022  5:04 PM

Stocks tumble, dollar soars and bonds plunge as recession fears grow

By Herbert Lash, Amanda Cooper and Tommy Wilkes

DJ: 30,076.68  -107.10        NAS: 11,066.81  -153.39        S&P: 3,757.99  -31.94      9/22

DJ: 29,590.41  -486.27        NAS: 10,867.93  -198.88        S&P: 3,693.23  -64.76      9/23

NEW YORK/LONDON, Sept 23 (Reuters) - U.S. and European stocks tumbled on Friday, the dollar scaled a 22-year high and bonds sold off again as fears grew that a central bank prescription of raising interest rates to tame inflation will drag major economies into recession.  The Dow (.DJI) narrowly missed confirming a bear market as a deepening downturn in business activity across the euro zone, and U.S. business activity contracting for a third straight month in September, left Wall Street wallowing in a sea of red.

The British currency and debt prices weakened further after the UK government announced huge debt-financed tax cuts that will boost borrowing, sending UK bond yields vaulting higher in their biggest daily increases in decades. read more  The euro plummeted to a 20-year low and sterling to a 37-year low, while the dollar soared after the Federal Reserve this week signaled rates would be higher for longer.

George Goncalves, head of U.S. macro strategy at MUFG, said the Fed wanted financial conditions to tighten and high interest rates were the mechanism to deliver a market investors had not seen for a long time.  "It's something we're not used to, that's why it's more surprising for most," he said. "It's going to be a long staring contest between the Fed and the markets, and in the middle is the economy which is not responding yet to this tightening."

MSCI's world stocks index (.MIWD00000PUS) shed 2.07% to almost two-year lows. The pan-European STOXX 600 index (.STOXX) closed down 2.34%, its biggest weekly loss in three months.

On Wall Street, the Dow Jones Industrial Average (.DJI) fell 1.62%, the first major U.S. stock index to fall below its June trough on an intraday basis. But the blue-chip index averted confirming a bear market, as it missed closing 20% or more lower than its record high, according to a widely used definition.  The S&P 500 (.SPX) and the Nasdaq Composite (.IXIC), already in bear market territory, fell 1.72% and 1.85, respectively.

Britain, Sweden, Switzerland, Norway and other countries also hiked rates this week. But the Fed's signal that it expects high U.S. rates to persist through 2023 sparked the rout in equity and bond markets.  Investors are trying to get a handle on inflation and how high rates will go, said Andrzej Skiba, head of the BlueBay U.S. fixed income team at RBC Global Asset Management.  "There's unease in the market about having confidence that we know how inflation will develop and that yields will indeed peak in the mid-high 4s," he said, referring to a Fed projection of the fed funds rate at 4.6% in late 2023.  "People have been reflecting on that uncertainty and it might mean more tightening ahead, it might mean even more tightening of financial conditions that the markets have to go through."

The dollar hit its highest in two decades and extended its double-digit gains for the year against several currencies.  Yields on the benchmark 10-year U.S. Treasury note have soared as investors ditch inflation-sensitive assets. Global government bond losses are on course for the worst year since 1949, BofA Global Research said in a note.  Yields on 10-year Treasury Inflation-Protected Securities (TIPS) , which account for expected inflation and are known as real yields, reached 1.426%, the highest since February 2011.  The inversion in the yield curve between two- and 10-year notes reached minus 58 basis points on Thursday, the most inverted in at least two decades, and was last at minus 51.6 basis points, indicating fears about a looming recession.

Oil prices plunged about 5% to an eight-month low. The super-strong dollar made crude more expensive in other currencies and fears of recession hit the demand outlook.  Brent crude futures settled down $4.31 at $86.15 a barrel, while U.S. crude fell $4.75 to settle at $78.74.  Gold prices fell to their lowest since April 2020 as the rally in the dollar and rising Treasury yields hurt bullion, which pays no interest. 

U.S. gold futures settled 1.5% lower at $1,655.60.

Bitcoin fell 2.57% to $18,904.00.