Investors took to heart the Federal Reserve’s words that it plans to rein in the bond buying it used to stimulate the economy last year and sent the 10-year Treasury yield to its highest point in three months.
“The market’s been steadily coming around to the reality that yields were awfully low relative to the fundamentals,” Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, told CNBC. “Now the Fed is shifting, and everybody’s shifting their positions, all at once, as we tend to do.”
The technology heavy Nasdaq Composite took the worst of it, closing 2.8% lower. Meanwhile, the S&P 500 fell 2% and the Dow Jones Industrial Average shed 1.6%.
One concern among investors is how well the economy holds up given inflation and the impact the fast-spreading delta variant of the coronavirus has on the global economy.
Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe, told the Wall Street Journal that people are starting to realize or remember that central banks have to start raising rates. “The patient has become used to being given all these drugs, but soon those drugs are going to have to be reduced,” Kassam said.
Consumer Confidence FallsA much-watched consumer index showed confidence dropping again in September with the delta variant of the coronavirus curbing enthusiasm, which deter shoppers from loosening their wallets in stores.
The Conference Board, a 105-year-old business association, reported Tuesday that its monthly index based on consumer surveys fell 5.9 points to 109.3, a third consecutive monthly decline. The index has fallen 19.6 points since its peak in June yet is still high by historical standards.
Lynn Franco, senior director of economic indicators at the association, said in statement that short-term inflation concerns eased but still remain relatively high. “Concerns about the state of the economy and short-term growth prospects deepened, while spending intentions for homes, autos, and major appliances all retreated again,” Franco said. Consumers were less optimistic about their short-term financial prospects and job prospects.
Small Businesses Becoming CautiousSmall businesses may be starting to hold back on hiring and investing more in their firms, according to a survey by the U.S. Chamber of Commerce. Its quarterly survey to produce an index with MetLife dropped to 56.6 in the third quarter from 60 the same survey in the second quarter. But it’s still a little better than the first quarter reading of 55.9.
In the survey, 68% of the businesses said they had kept the same staffing level over the past year. A higher majority plans to retain the same size of the next year than in the second quarter.
For the quarter, though, most small business owners reported healthy operations with good cash flow. The results were on par with the previous quarter. Most of the owners, in fact, expect that their revenue will increase over the next year.
Source: CoStar Group, www.costar.com