Stocks Fall As Dollar Continues to Surge

3:10 pm Monday, September 26th, 2022

Wall Street slid further into bear market territory on Monday as investors fretted that the Federal Reserve’s aggressive campaign against inflation could throw the U.S. economy into a sharp downturn. After two weeks of mostly steady losses on the U.S. stock market, the Dow Jones Industrial Average was on the verge of confirming it has been in a bear market since early January.

The early rebound effort was driven by a moderation in Treasury yields from overnight highs and a sharp recovery in the British pound, which reached an all-time low against the dollar of 1.0382. The recovery was fueled by speculation that the Bank of England would intervene today to arrest the decline in the pound with an emergency rate hike.

Price action reversed for both of these factors, though, again putting pressure on stocks. The reversal coincided with an update from the Bank of England that a “full assessment” of matters will occur at its next scheduled meeting (November 3). In other words, there is no intervention today and market participants have been led to believe that there won’t be any supportive rate hike action until November.

That realization triggered renewed selling of the pound and Treasuries.

The 2-yr note yield, which hit 4.35% overnight, fell to 4.20% but has now climbed back to 4.30%. The 10-yr note yield, which hit 3.80% overnight, fell to 3.75% but has spiked to 3.85%.

The British pound, which had recovered to 1.0903 against the dollar, is now down 1.6% to 1.0677.

Mega cap stocks are showing relative strength today, having driven the market higher when it was in rebound mode and limiting losses on the renewed selling interest. The Vanguard Mega Cap Growth ETF (MGK) is down 0.1% versus a 0.7% loss in the S&P 500 and a 1.2% loss in the Invesco S&P 500 Equal Weight ETF (RSP).

Only two of the 11 S&P 500 sectors remain in positive territory, consumer staples (+0.2%) and consumer discretionary (+0.3%). The latter is getting a boost from casino stocks, which trade up following reports China will allow Macau tour groups for first time in 3 years. Wynn Resorts (WYNN) is a winning standout for the group.

Energy complex futures are trending lower. WTI crude oil future are down 1.7% to $77.43/bbl and natural gas futures are down 0.5% to $6.96/mmbtu.