The Dow Jones Industrial Average fell 1.63% to 34,299.99, while the Standard & Poor’s 500 dropped 2.04% to 4,352.64, the biggest drop since May.

The technology Nasdaq Composite fell 2.83% to 14,546.68 points.

Tech companies were once again among the worst performing companies as interest rates on 10-year US debt peaked in late June at over 1.53%, in anticipation of a monetary tightening by the Fed.

This comes after the central bank announced last week that it should begin removing stimulus (“tightening”) for the economy from November and signaling that interest rates could be raised earlier than expected. But the timing of the “narrowing” has not yet been determined, which heightens anxiety in the markets.

If interest rates on debt continue to rise, this could further affect technology stocks, which have low dividend yields.

tough day

Equity markets were having a rough day on Tuesday, both in Europe and the US, at a time when investors are no longer risk averse, said Craig Earlam, senior market analyst at Oanda, in a research note.

“There has been so much to learn over the past week, from the Evergrande versus Lehman comparisons to ‘so far okay’ that investors seem to be increasingly worried about what comes next. Not much has changed in recent days, but perhaps attitudes have changed, ”said an analyst at Oanda.

And he continues: “Last week, the central bank [BCE e Fed] The point is that inflation was (above all) transient, and that the phase of the need for emergency stimulus is almost over. The recovery is slowing but is forecast to pick up steam again, as will price pressures. While this message does not appear to have changed this week, investors are not looking very comfortable. “

“Possibly an excuse for using the waterfall to buy [o chamado ‘buy the dip’] is losing ground in a world where central banks plan to end stimulus because of rising inflation rather than economic strength. Or perhaps the “winter of discontent” is becoming an increasingly disturbing reality at a time when energy shortages are causing prices to skyrocket, ”says Craig Earlam.

“Or is the endless list of risk factors finally starting to influence sentiment when investors, like central banks, feel insecure about what will happen next in the next 12 months? It is happening in the markets, it doesn’t look like it will disappear any time soon, ”he said. he predicts.

Yellen warns of “shutdown”

Market participants also took a close look at the statements made by Fed Chairman Jerome Powell and US Treasury Secretary Janet Yellen before the Senate Banking Committee.

Yellen warned that the federal government could run out of cash as of Oct. 18 unless Congress takes action to raise the US debt ceiling after the proposal was passed. sinker yesterday in the senate…

Senate Republicans have blocked a proposal that has already passed the House of Representatives and aims to fund the federal government and lift the debt ceiling. Thus, the proposal was aimed at avoiding a “stop” by the federal government and a potential default on the payment of US debt.

The remark comes after Republicans called on Democrats to come up with a separate debt limit proposal, leaving Congress with no clear plan to keep the administration afloat from September 30.

September 30 is the date that current government funding expires, and the 2022 budget is due to take effect the day after. Avoid stopping federal government services from mid-October (when the available money “runs out”), and the country will need to suspend or increase the country’s debt limit in the coming weeks to prevent a “default,” CNBC emphasized yesterday.

CNN points to the possibility that Democrats may decide to remove the debt ceiling suspension from the federal funding proposal, instead trying to pass – as it has done before – a preliminary law that allows agencies to continue funding. This legislative measure is known as the Continuity Resolution. Although there is no final agreement on the federal budget, the “stop” can thus be avoided with this short-term financial solution. [“stopgap spending bill”]…

The interim bill, approved by the House of Representatives last week, will fund and keep the government “open” until December 3. In addition, this measure included the suspension of the debt ceiling until December 16, 2022. As time goes on to resolve the debt limit problem, Congress may only have until mid-October – when the federal government can no longer pay your bills, as Yellen said today.

Powell’s problems

Powell, meanwhile, faced burning questions from some senators who criticized the central bank’s asset trading guidelines, as well as financial regulation and diversification measures.

Democratic Senator Elizabeth Warren was one of the fiercest critics, calling Powell “dangerous” and saying she would not endorse him for a second term at the head of the central bank.

“Your actions have made our banking system less secure, and it makes you a dangerous person to head the Fed. And so I will object to your reappointment, ”he said, quoting Bloomberg.

“The Republican Fed chairman, who regularly voted to deregulate Wall Street, cannot put our economy on a financial cliff again. I don’t think it’s worth the risk, ”Warren said.

Powell’s term expires at the end of January, and Bloomberg reported that White House officials are considering recommending President Joe Biden keep him in office. Yellen already showed her support for Powell last month, which is seen as a strong recommendation since she was the Fed chairman herself.

Speaking to the Upper House Banking Committee – the day after the two regional Fed presidents announced their resignations after scrutinizing their investments, Powell today defended the central bank and set out to make the necessary improvements to Federal Reserve policy.

Powell, who ordered a reassessment of the Fed’s code of ethics earlier this month, added that the central bank is also reviewing transactions conducted by regional Fed presidents to ensure they are legal and in line with current guidelines.

This comes after Democratic Senator Sherrod Brown said at the start of today’s hearing that he intends to pass legislation prohibiting Federal Reserve officials from owning shares in companies.