US stocks fell more than 2% in their biggest drop in two months

US stocks suffered their biggest drop in two months on Monday, with technology shares falling sharply on the back of a bleak economic outlook and fears that Federal Reserve members will adopt a hawkish tone at this week’s seminar.

Wall Street’s benchmark S&P 500 fell 2.1 percent, its biggest drop in a single day Since mid-June. There were declines in all sectors, but technology stocks and cyclical consumer groups including Amazon and Tesla were the hardest hit. The technology-dominated Nasdaq Composite Index fell 2.5 per cent.

Tech stocks that promise long-term growth are seen as particularly vulnerable to higher interest rates because higher rates reduce the relative value of earnings far into the future.

“The Nasdaq is the epicenter of uncertainty about interest rates in the stock market,” said Julian Howard, chief investment officer at GAM. “[The Fed] He talks about hawks, which makes the market very nervous. The task is not finished [on inflation]. “

The Fed has already raised interest rates three times this year in an effort to bring inflation down from its highest levels in 40 years, but officials stressed that the US central bank must go even further.

Although Monday’s stock market declines seemed to contrast with the strong rally in the third quarter, investors cautioned that earlier gains were not evidence of increased investor optimism after a shocking start to the year.

“I am not buying that comfortably high. I think we will face more downsides in risk markets for the rest of the year,” said Jamie Niven, senior fund manager at Candriam.

Federal Reserve Chairman Jay Powell is expected to reiterate his commitment to aggressively raising interest rates at the central bank’s annual meeting in Jackson Hole, Wyoming, this week.

Joost van Linders, chief investment analyst at Van Lanschot Kempen, predicted that Powell “[will] Justify why they are raising interest rates so quickly and why they have to.”

“We continue to expect a relatively hawkish rhetoric,” said Andrew Hollenhurst, economist at Citigroup.

The hawkish outlook was mirrored in government bond markets, with the yield on policy-sensitive two-year Treasuries rising 0.06 percentage point to 3.32 percent. The two-year yield is up from less than 1 percent at the end of last year, and was around 2.5 percent in late May. The yield on the benchmark 10-year bond rose above 3 per cent for the first time in a month.

Higher returns reflect lower prices, and traders on Monday said they saw a wave of put option buying on Treasury futures — bets that the futures value will fall.

John Brady, managing director of futures brokerage RJ O’Brien, said bearish bets, including several that expire on Friday, are being implemented to guard against further potential treasury sell-off after the Jackson Hole summit.

In the currency markets, the euro fell 0.9 percent against the dollar to $0.994, falling back below $1 for the second time this summer. It hit parity with the dollar in July for the first time in two decades.

Europeans’ concerns about possible cuts to Russian energy supplies have led Gas and energy prices rise on Monday, adding to fears that the continent could slip into recession.

The regional stock index Stoxx Europe 600 closed 1 percent lower, with Germany’s DAX down 2.3 percent.

The dollar index, which measures the US currency against a basket of its peers and tends to rise during periods of uncertainty, rose 0.7 percent. The index is up nearly 3 percent this month, returning close to a two-decade high hit in July.

Stocks in Asia largely followed Wall Street lower on Tuesday morning, with Japan’s Topix down 1.1 per cent and Australia’s S&P/ASX 200 down 0.5 per cent. Hong Kong’s Hang Seng has been consistent.

On Monday, mainland China shares rebounded after the People’s Bank of China Lowering the mortgage rate For the second time this year in an effort to support the debt-ridden real estate sector.

Additional reporting by Eric Platt in New York and Hudson Lockett in Hong Kong