In response to a series of economic data releases that raised concerns about the uncertain outlook of the US economy and the possibility of further interest rate hikes by the Federal Reserve, stock markets experienced a significant downturn on Tuesday.
The S&P 500, the benchmark index, recorded a 1.5% drop, marking its lowest closing level since June. The Dow Jones Industrial Average also experienced a notable decline, falling by 388 points, equivalent to a 1.1% decrease, the largest single-day drop since March. Meanwhile, the Nasdaq Composite suffered a 1.6% decline.
The S&P 500's recent performance has led it below the threshold that previously categorized it as being in a bull market, which signifies a climb of over 20% from its most recent low last October. However, it's important to note that the overall stock market is still considered to be in a bull market and would need to experience a 20% decline from its peak to enter bear territory.
All three major stock indexes are currently on track to end the week and month with losses.
The release of housing data on Tuesday morning revealed an 8.7% decline in new home sales for August compared to July. This drop coincided with mortgage rates surpassing 7%, reaching levels not seen in decades.
Simultaneously, US home prices continued their upward trajectory, reaching a record high in July. This marked the sixth consecutive month of price increases, driven by a limited supply of homes, according to the latest Case-Shiller home prices index.
Bill Adams, Chief Economist at Comerica Bank, remarked, "The Fed will see the reacceleration of house prices as a reason to keep interest rates higher for longer. The Fed cannot afford to look past house prices' influence on the cost of living."
Investor sentiment has been rattled since the Federal Reserve's announcement last week, indicating the potential for another interest rate hike this year and a delayed timeline for rate cuts. This development led to a surge in yields, reaching levels not seen in decades, as investors adjusted their expectations regarding the duration of elevated interest rates.
CNN's Fear & Greed Index, utilizing seven market indicators, registered a "Fear" reading of 26, just above the "Extreme Fear" level. This marks the index's lowest point since March, coinciding with the turmoil in financial markets triggered by the collapses of regional lenders Silicon Valley Bank and Signature Bank.
Oil prices experienced gains on Tuesday after a previous pullback. West Texas Intermediate crude futures, the US benchmark, rose to approximately $90 per barrel, while Brent crude, the international benchmark, climbed to $94 per barrel.
JPMorgan Chase CEO Jamie Dimon contributed to investor unease by preparing the bank's clients for a scenario involving a 7% interest rate, further adding to market apprehension.
Additionally, concerns persist over the possibility of a government shutdown as the fiscal year's end on September 30 approaches without a spending deal in place. Moody's issued a warning on Monday, stating that such an event could have a negative impact on America's credit rating. This comes after Fitch downgraded the credit rating earlier this year when the federal government narrowly averted breaching the debt ceiling.
Please note that stock market levels may undergo minor adjustments after the close of trading.