NY Stock Market and Cryptocurrency Plunge Amid Expectations of Interest Rate Hike by End of Next Year

National Bond Yields Diverge Between Short-Term and Long-Term
Dollar Rises Again
Cryptocurrencies Continue Weakness

James Bullard, President of the St. Louis Federal Reserve Bank
[Photo by Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Remarks that the U.S. base interest rate will be raised next year caused the New York stock market to plunge. While U.S. Treasury yields showed divergent directions between short-term and long-term bonds, the dollar remained strong.

On the 18th (local time), the Dow Jones Industrial Average fell 533.37 points (1.58%) to close at 33,290.08, the S&P 500 dropped 55.41 points (1.31%) to 4,166.45, and the Nasdaq fell 130.97 points (0.92%) to 14,030.38.

The market decline was largely due to James Bullard, President of the Federal Reserve Bank of St. Louis, forecasting a rate hike next year, which weighed on the market.

Bullard, who has typically been classified as dovish, surprised the market by mentioning the first rate hike at the end of 2022 during an interview with CNBC. Bullard holds voting rights at next year’s FOMC meetings.

With Fed officials signaling rate hikes in 2023 through the dot plot and adopting a more hawkish stance, Bullard, who does not have voting rights this year, also showed a similar position.

Bullard stated that detailed discussions on tapering (asset purchase reduction) will take place at future meetings.

Bullard’s unexpected remarks caused significant turbulence in the Treasury yield market. Short-term Treasury yields such as 2-year and 5-year bonds rose, but the 10-year yield fell by 0.068 percentage points from the 1.50% range to 1.44%.

The divergence between short-term and long-term yields is interpreted as short-term yields reflecting expanding inflation and early rate hikes, while long-term yields of 10 years or more reflect the possibility of a future U.S. economic slowdown.

Despite the decline in long-term Treasury yields, the dollar continued its strength. The dollar index, which measures the dollar’s value against major currencies, rose 0.4% to 92.325, marking the highest level since March.

Amid the dollar’s strength, cryptocurrency prices also showed weakness. Bitcoin fell 4.4% to around $35,600, Ethereum dropped 7.3% to about $2,200, and Dogecoin declined 9.7% to 29 cents.

The drop in long-term Treasury yields caused bank stocks to plunge. JPMorgan fell 2.5%, and Goldman Sachs dropped 3.5%.

West Texas Intermediate (WTI) crude oil prices closed up 60 cents (0.8%) at $71.64 per barrel, but energy stocks continued to decline. ExxonMobil fell 2.5%, and Chevron dropped 3.7%.

Most tech stocks such as Apple, Alphabet, and Facebook also declined, but Tesla closed up 1%.

With increased market volatility, the fear index (VIX) rose 2.95 points (16.62%) to 20.70.

This content was produced with the assistance of AI translation services.