S&P 500 falls on fears of further rate hikes

The S&P 500 fell overnight following unexpectedly strong futures from the Institute for Supply Management, spiking fears of further rate rises.

This morning was a rough day for investors.

Overnight the S&P 500 fell 1.79%, while the Dow Jones was down 1.4% and the tech-heavy Nasdaq fell 1.93%.

This is expected to flow onto the Asian markets during Tuesday’s trading.

Why the sudden fall?

When it comes to shares in 2022, bad economic news is good for investors.

This is because the worse the economy performs the more likely inflation has peaked meaning central banks can slow down their rate rises.

Unfortunately for markets, the latest figures from the Institute for Supply Management (ISM) were strong.

“ISM services at 56.5 compared to expectations of 53.3.”

“Did Powell mini-pivot too early?,” CEO of Steno Research Andreas Steno Larsen said on Twitter.

According to the ISM figures its non-manufacturing PMI increased to 56.5 last month, up from 54.4 in October. Business-registered activity was up 9 percentage points while the new order index figures were up 0.5% but were lower than the October reading.

“The composite index indicated growth for the 30th consecutive month after a two-month contraction in April and May 2020,” report issuer Anthony Nieves said.

“Growth continues at a faster rate for the services sector, which has expanded for all but two of the last 154 months.”

Will it stop the Fed from pivoting?

Last week, Federal Reserve (the Fed) Chair Jerome Powell said in his speech that inflation was starting to fall and there were signs that he could slow the rate of increase down.

Although he pointed out that more work needed to be done.

“Despite some promising developments, we have a long way to go in restoring price stability,” he said.

The latest figures from the ISM have markets fearing that the Fed won’t pivot.

Well not in the next month.

This is because strong business activity remains high.

But while Wall Street is unsure, CME Group’s FedWatch tool actually is now more confident the Fed will slow rates down.

Last week it was saying there was a 75% chance of rates rising by 50 basis points, today it’s at 79.4%.

This doesn’t mean the rate-hiking cycle is ending, but if the traders are right, it does mean the pace of growth will slow.