The Dow Jones Industrial Average fell on Monday as investors worried that rising interest rates and foreign currency turmoil could push the S&P 500 to a new closing low for the year.
The Dow fell 120 points or 0.4%. The S&P 500 lost 0.2%, and the Nasdaq Composite lost 0.4%.
Consumer sentiment slows support for broader market index after gains in casino stocks. Wynn Resorts rose 12.9% and Las Vegas Sands jumped 12.5% after news that China would allow tour groups into Macau for the first time in nearly three years.
Shares fell sharply, as did the British pound has dropped to a record low It fell 4% to an all-time low of $1.0382 against the U.S. dollar on Monday. The pound has hit its worst levels since then The Bank of England may have to raise rates more aggressively to prevent inflation.
The Federal Reserve’s aggressive hiking campaign and tax cuts announced by the UK last week have pushed the US dollar higher. The euro has hit its lowest level against the dollar since 2002. A rising dollar could hurt the profits of US multinationals and also hurt global trade, much of which is transacted in dollars.
“This kind of strength in the US dollar has historically led to some kind of financial/economic crisis,” said Michael Wilson, chief US equity strategist at Morgan Stanley. “If there was ever a time to look for something to break, this would be it.”
Traders will be watching the S&P 500 closely on Monday for any break below the bear market lows. The S&P’s June close of the year was 3,666.77. It closed at 3,693.23 after trading shortly after that level on Friday. The benchmark’s intraday low for the year is 3,636.87. Any trade below these levels could lead to more selling in the market.
Stocks ended a brutal week with the blue chip Dow on Friday finding a new intraday low for the year and closed 486 points lower. The broad market S&P 500 temporarily fell below its June closing low and fell 1.7%. The tech-heavy Nasdaq Composite lost 1.8%.
Another super-sized interest rate hike by the Federal Reserve last week was the latest catalyst for the markets’ decline. The central bank said it could raise rates to 4.6% before pulling back. The forecast also suggests the Fed plans to be aggressive this year, raising rates to 4.4% by the end of 2022.
Bond yields rose after the Fed agreed to another rate hike of 75 basis points. The 2-year and 10-year Treasury rates hit unprecedented highs in a decade. On Friday, Goldman Sachs reduced the target by the end of the year 4,300 to 3,600 for the S&P 500.
Rates rose again on Monday, with the 2-year Treasury crossing 4.29% at one point in the day.
