On Tuesday stocks fell, thus eliminating any gain diverting from the rally that the market had seen on Monday. Many companies were affected, as most S&P 500 sectors closed on a lower price. While oil and energy stocks seemed to withstand the drop by reaching significant swing highs.
Investors seem to be worried due to the ongoing inflation. As inflation increases, the economic policies proposed by the Federal Reserve must act in response. Mainly, by increasing interest rates in order to reduce the amount of loans and to receive additional revenue from financial instruments.
A rise in interest rates will further harm the stock market, but it is a measure that must be taken in order to curb inflation, as it is estimated that the cost of living has increased to a three-year high.
Stocks vs. Economic measures
Stocks have a direct relation with national economy. Most companies and stocks have reduced their value, such as Dow Jones and Nasdaq losing 1 and 1.3 percent respectively. Yet, it is worth noting that global commodities such as U.S. crude rose in value, in this case 59 cents, setting the price of a barrel in $48.31. This is also true for gold, as it rose $2.70 setting the price of an ounce at $1,276.90.
Global commodities such as gold and oil are very important to understand economy. It is a fact that, whenever the price of gold increases, the price of the U.S. dollar tends to decrease. This is due to both people and companies noticing the depreciation of currency, as gold becomes a much more reliable financial asset. In this last session, silver also saw an increase of 10 cents, setting itself at $17.25 per ounce.
Analysts believe that due to reports from government agencies, the Federal Reserve will look into increasing interest rates. The decision is expected to be taken in June, as the Reserve administration will have to meet in order to assess upcoming policies. According to economic reports, U.S. consumer prices have risen 0.4 percent in April when compared to March, reaching a yearly increase of 1.1 percent.
One of the notable stocks involved in the shortcoming of this last session is LendingClub, a company that went public not very long ago. The price of its shares managed to reach $25 as of late 2014, but now they stand at $3.62 per share, losing 8.63 percent overnight. The reason appears to be that the Department of Justice has issued an investigation against the company, forcing the removal of their founder over the course of the past week.
Source: NY Times