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- Stocks tumbled on Tuesday as investors priced in monetary policy changes, high inflation
- Political uncertainty from Washington weighed on the market mood as the US is facing a default
Volatile Week to Mark the End of the Quarter
The US stock market endured a volatile week as investors sought to position their portfolios to the new normal. Now that the monetary stimulus is about to be reduced and interest rates will gradually rise, market participants must adjust.
Add to the mix surging inflation and political uncertainty out of Washington and you get the backdrop for the past week. Furthermore, the week marked the end of a wild quarter.
Investors were looking for opportunities following the Evergrande debt crisis but Monday’s stock performance was fairly flat and uneventful.
Increased Jitters Prevail
Afterwards, there were major swings in both directions over the week. On Tuesday, the $51tn stock market saw billions sliced from its valuation in what became the worst day since May. In other words, heavy selling pressure pushed the three major indexes lower by 1.6% or more. For example, the Dow Jones Industrial Average lost as much as 570 points. In addition, the Nasdaq Composite and the S&P500 declined by 2% and 2.8%, respectively.
Moreover, the turbulent first half of the week was also defined by a Senate hearing. Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell spoke before lawmakers, discussing the US economy. In their testimonies, both high-ranking authorities shared how they saw the US economy and suggested the next steps forward.
Jerome Powell and Janet Yellen Testify
Mr. Powell noted that inflation has turned out to be more persistent than previously thought. On that note, he said he expected higher prices to moderate in 2022 when the economic reopening is complete.
On the other hand, Ms. Yellen urged Congress to take action to raise or suspend the debt ceiling by Oct. 18. Otherwise, she said, the US will face its first-ever default and the US will run out of cash. If that happened, the Treasury chief said, the country could be in deep political trouble while financial markets could actually crash.
The remarks by Jerome Powell and Janet Yellen weighed further on the gloomy sentiment and stocks continued searching for direction.
Meanwhile, cryptocurrencies proved to be more resilient as they largely withstood the selloff on Tuesday. That being said, Bitcoin hovered near $42,000 to $44,000 during most of the week.
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