Before the Fed interest rate decision: US stock markets continue to fall, inflation remains high

Uncertainty about the extent of the forthcoming interest rate hikes in the USA weighed on the US stock exchanges on Tuesday as well.

On the day before the next interest rate decision by the US Federal Reserve, the stock markets extended the losses from the beginning of the week somewhat.

The Dow Jones Industrial fell 0.50 percent to 30,364.83 points.

The leading index plumbed another low since the beginning of last year.

In the past four trading days, the loss has added up to almost eight percent.

The market-wide S&P 500 closed 0.38 percent lower at 3735.48 points on Tuesday.

The technology-heavy selection index Nasdaq 100 held up slightly better with an increase of 0.21 percent to 11,311.69 points.

Inflation continues

Investors' concerns about interest rates were underpinned by new data on inflation.

For example, producer prices in May did not rise as much as feared over the year.

With an increase of 10.8 percent, however, inflation is still extraordinarily high.

Contrary to expectations, consumer prices continued to climb in May – to 8.6 from 8.3 percent.

In April, US inflation fell slightly for the first time since August 2021.

But material bottlenecks and increased energy costs, also as a result of the Ukraine war, keep the price pressure high.

Guessing the size of the next interest rate hike

In view of the highest inflation in more than 40 years, the US Federal Reserve is expected to hike interest rates sharply this Wednesday.

Some investors are now firmly anticipating an increase of 0.75 percentage points instead of the signaled 0.5 percentage points.

However, he assumes that the Fed will stick to its course and instead signal further hikes of half a percentage point each into the fall, said Neil Wilson, chief analyst at online broker Markets.com.

Fed Chair Jerome Powell wants to avoid unsettling investors: "75 basis points tastes like panic."

In May, the Fed made the largest interest rate move in 22 years, raising interest rates by half a percentage point to a range of 0.75 to 1.0 percent.

At the same time, Powell signaled that he would maintain this pace in June and July.

“Following Friday's inflation shock, the market consensus now stands at 0.75 percent.

A double interest rate hike of only 0.50 percent would be a positive surprise for the stock exchanges," says portfolio manager Thomas Altmann from the investment advisor QC Partners.

Higher US Treasury yields

The recent losses on the stock exchanges were accompanied by sharply rising yields on the US bond market: ten-year government bonds returned at just under 3.47 percent, the highest level in eleven years.

In contrast, the futures contract for ten-year Treasuries (T-Note Future) fell by 0.76 percent to 114.41 points.

According to observers, the danger of an economic slowdown increases with rapidly and sharply rising interest rates.

"Feds are being forced into a self-inflicted recession in order to contain inflation," wrote Sean Darby, investment strategist at US Bank Jefferies.

Winners: Oracle, Fedex, Boeing

Oracle's shares recorded high price gains.

According to the results of the final quarter of the financial year, it went up by more than ten percent.

JPMorgan analyst Mark Murphy spoke of surprisingly solid growth at the fastest pace since 2011.

Fedex' shares rose even more sharply, rising by a good 14 percent.

That was the highest daily profit since 1986. The shareholders of the US logistics group can look forward to a significantly higher dividend.

The quarterly distribution is to be increased by more than half.

Boeing shares topped the Dow with a 5.4 percent premium.

The aircraft manufacturer received fewer orders in May than in April.

However, the share price had already collapsed by more than 40 percent in this stock market year.

Coca-Cola, the weakest stock in the Dow, lost 3.4 percent.

The beverage manufacturer is postponing the IPO of its Coca-Cola Africa Bottler holding due to the strong fluctuations in the markets and the ongoing economic uncertainties.

Other consumer stocks, such as Procter & Gamble, Johnson & Johnson, Pepsico and Colgate-Palmolive, showed weakness.