Stocks Plummet Amid Speculation of Interest Rate Increases

Strategic Insights -

Financial markets took a hit yesterday as concerns about future interest rates and inflation sent stock prices tumbling. The Standard & Poor's 500-stock index fell 6.33 points, or 0.5 percent, to 1,257.37, near its low for the day. The Dow Jones industrial average slid 45.95 points, or 0.4 percent, to 10,810.91. Industry experts point to the Federal Reserve's expected interest rate increase and better-than-expected economic growth reports as contributing factors to the market's decline.

Key Takeaways:

  • The S.& P. 500, after rising as much as 3.2 percent this quarter, is down 0.9 percent from its high for the period, reached on Nov. 25.
  • The rally has stalled as better-than-expected reports on economic growth and durable goods last week and a five-day jump in oil prices through Tuesday reignited speculation that the Fed would keep lifting rates.
  • A gauge of financial shares slid 0.8 percent and contributed the most to the S.& P. 500's drop among 10 industry groups, with Bank of America slipping 45 cents, to $45.86, and Citigroup, the nation's biggest financial-services company, losing 19 cents, to $48.70.
  • Higher borrowing costs erode the value of bonds owned by banks, brokers and insurers, and crimp demand for mortgages and loans.
  • Intel, the world's biggest chip maker, slid 52 cents, to $26.15, helping send an S.& P. gauge of semiconductor-related stocks down 1.1 percent.
  • More than two stocks fell for every one that rose on the New York Stock Exchange, with about 1.6 billion shares changing hands on the Big Board, 4.8 percent below the three-month average.
  • The price of Treasury securities fell as the government sold $13 billion of five-year notes in the first of two debt auctions this week.

Statistics:

  • The S.& P. 500 fell 6.33 points, or 0.5 percent, to 1,257.37.
  • The Dow Jones industrial average slid 45.95 points, or 0.4 percent, to 10,810.91.
  • The Nasdaq composite index lost 8.75, or 0.4 percent, to 2,252.01.
  • Crude oil for January delivery lost 1.2 percent, to $59.21 a barrel, in New York yesterday.
  • The Federal Reserve is expected to increase its target rate next week by a quarter point, to 4.25 percent; it would be the 13th consecutive increase.
  • Traders see a 90 percent chance of a further increase to 4.5 percent at the Jan. 31 meeting, based on futures contracts in Fed funds at the Chicago Board of Trade.
  • A gauge of financial shares slid 0.8 percent, with Bank of America slipping 45 cents, to $45.86, and Citigroup, the nation's biggest financial-services company, losing 19 cents, to $48.70.

Sources:

  • Bloomberg Financial Markets
  • The Associated Press
  • Treasury Department
  • Chicago Board of Trade
  • United States Department of Energy
  • Intel
  • Federal Reserve