A miserable reflection on Wall Street. Debt again in the spotlight

2021-09-29 22:11

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2021-09-29 22:11

Mizerne odbicie na Wall Street. Dług znów w centrum uwagi — photo. spatuletail / / Shutterstock

After quite strong Tuesday declines Wednesday’s rebound on the New York stock exchanges – euphemistically speaking – did not impress. Technology companies, whose valuations are hindered by developments in the debt market, have come under pressure.

Again, more talk than debt on Wall Street. This is in two respects. The first is the increasing risk of “government shutdown” and potentially even US bankruptcy. This can happen if congressmen and senators fail to agree on another suspension or significant increase in the federal government’s statutory debt limit. Time for agreement ends on Friday midnight.

The second aspect concerns the increasingly likely reduction of the bond purchase program that has been running since March 2020 Federal Reserve. Anticipating even a slight tightening of the Fed’s ultra-loose monetary policy, the debt market has been raising the yields of US treasury securities for several days. Yield of 10Y Treasuries exceeded 1.50%, which worried Wall Street investors on Tuesday.

It was then that the valuations of technology companies, which are particularly sensitive to changes in the discount rate for future cash flows, suffered. Moreover, even such low (but rising!) Bond yields increase the attractiveness of debt securities in relation to almost

the extremely highly valued US stock market.

The pressure of sellers was also visible on Wednesday. Amazon stock was discounted by 0.5% (after a 2.6% drop on Tuesday), Facebook by 0.3% and Alphabet by over 1%. The latter company informed about introducing total censorship of materials undermining the officially administered narrative against Covid-19 vaccines. Nasdaq ended Wednesday with a loss of 0.24% and it was the fourth consecutive downturn session.

They defended themselves against declines to the S & P500 and the industrial average Dow Jones. The former gained 0.16% and the latter 0.26%. However, both indices ended the day clearly below the session highs, losing in the last minutes of trading.

Traditionally, the end of September and the beginning of October are a weak period for equities. . Both the very exaggerated valuations, the slowdown in corporate earnings growth, as well as the deteriorating macroeconomic environment and the prospect of the Fed limiting QE are convenient explanations even for a rather sharp correction. The more so that the last declines on Wall Street were last seen exactly a year ago. Since then, stock prices have been climbing monotonously – the S & P500 is 16% higher than a year ago, and the Nasdaq has gained almost 31% in the last 21 months.

Krzysztof Kolany

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