The Wall Street rally that persisted for the first seven months of 2023 has taken a hit in August and September, with market participants expressing significant concerns over the Federal Reserve's (Fed) warning of another 25 basis point rate hike by year-end. This concern is further amplified by the Fed's pursuit of a higher interest rate regime for an extended period, with the first rate cut not anticipated until September 2024. The inflation rate is also not expected to fall to the central bank's target rate 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 consequence, major cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), Dogecoin (DOGE), and BNB (BNB) are expected to remain volatile, ushering in potential uncertainty for the crypto space in October.
Following Fed Chairman Jerome Powell's post-FOMC statement this week, yields on short-term 2-Year U.S. Treasury Notes reached 5.461%, their highest level since 2006. The yield on the benchmark 10-Year U.S. Treasury Note also soared to 4.639%, marking its highest level since 2007. This surge in U.S. government bond yields has alarmed investors, who fear it may signal an impending recession.
Further adding to market concerns, crude oil prices rose to their highest settlement level for the year on Monday, September 27. Global benchmark Brent crude increased by $0.16 to close at $96.71, while U.S. benchmark Western Texas Intermediate crude rose by $0.20 to close at $93.88. These escalating oil prices pose a threat as they will increase transportation costs and subsequently inflate the overall price level.
Despite a steady decline since June 2022, the inflation rate remains well above the Fed's 2% target level. The rise in crude oil prices will only make the Fed's task more challenging. Additionally, on Monday, September 26, the ICE U.S. Dollar Index (DXY), a measure of the currency against a basket of six others, rose 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 drop since December 2020. The Expectations Index, 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, an Expectations Index reading below 80 signals a recession within the next year.
In light of these developments, several companies find themselves in focus. Notable among them are NVIDIA Corp. (NASDAQ:NASDAQ:NVDA), a semiconductor industry giant and one of the biggest success stories of 2023; Robinhood Markets Inc. (NASDAQ:NASDAQ:HOOD), which operates a financial services platform in the United States; Interactive Brokers Group Inc. (NASDAQ:NASDAQ:IBKR), a global automated electronic broker; Coinbase (NASDAQ:COIN) 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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