The Wall Street rally that began in early 2023 and lasted for seven months has suffered a setback in August and September, as market participants became increasingly concerned about the Federal Reserve’s (Fed) warning of a 25 basis point rate hike by year-end. Moreover, the Fed’s intention to maintain higher interest rates for an extended period, with the first rate cut not expected until September 2024, has further compounded the situation. Furthermore, the inflation rate is not expected to reach the central bank’s target of 2% until 2026.
These higher market interest rates are particularly damaging to high-growth sectors such as technology, consumer discretionary, and cryptocurrency. As a result, major cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), Dogecoin (DOGE), and BNB (BNB) are expected to remain volatile, leading to potential uncertainty in the crypto space during October.
This week, following Fed Chairman Jerome Powell’s post-FOMC statement, yields on short-term 2-Year U.S. Treasury Notes reached 5.461%, their highest level since 2006. Similarly, the yield on the benchmark 10-Year U.S. Treasury Note also surged to 4.639%, its highest level since 2007. Such a sharp rise in U.S. government bond yields has alarmed investors, who fear it may be a sign of an impending recession.
Adding to market concerns, crude oil prices closed at their highest settlement level for the year on Monday, September 27. Global benchmark Brent crude increased by $0.16 to settle at $96.71, while U.S. benchmark Western Texas Intermediate crude rose by $0.20 to close at $93.88. An increase in oil prices can lead to higher transportation costs, thus raising the overall price level.
Despite a steady decline since June 2022, the inflation rate still remains well above the Fed’s 2% target. The rise in crude oil prices will only make the Federal Reserve’s task more difficult. Meanwhile, on Monday, September 26, the ICE U.S. Dollar Index (DXY), which tracks the currency against a basket of six others, climbed 0.4% to touch 106.71, its highest intraday level since November 30, 2022.
Consumer confidence also took a hit this month, with The Conference Board reporting a September index of 103, compared to 108.7 in August. This marked the index’s second consecutive monthly decline and the largest decline since December 2020. The Expectations Index, which is based on consumers’ short-term outlook for income, business, and labor market conditions, fell to 73.7 in September from 83.3 in August and 88 in July. Historically, when the Expectations Index drops below 80, it usually signals a recession within the next year.
In view of these developments, several companies have become the focus of attention. These include: NVIDIA Corp. (NASDAQ:NVDA), a semiconductor industry giant and one of the biggest success stories of 2023; Robinhood Markets Inc. (NASDAQ:HOOD), which offers a financial services platform in the United States; Interactive Brokers Group Inc. (NASDAQ:IBKR), a global automated electronic broker; Coinbase Global Inc. (NASDAQ:COIN), which provides financial infrastructure and technology for the crypto economy; and Block Inc. (NYSE:SQ), an online digital and mobile payment platform for consumers and merchants.
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