The US stock market experienced a sharp drop on Wednesday, extending a recent downward trend. Investors are uncertain about interest rate cuts by the Federal Reserve, which has lowered their expectations from five or six cuts to just one or two. Additionally, disappointing earnings from large companies like Travelers and Prologis contributed to the decline. However, some individual stocks like United Airlines performed well, indicating strong demand in certain sectors.
Earnings reports from major banks have raised concerns about the economy. The Federal Reserve's interest rate path is uncertain, with varying probabilities of rate cuts. Experts predict that the market may enter a holding pattern if rates remain unchanged. Tech giants, notably Microsoft and Amazon, are expected to perform well due to their diverse operations. Interestingly, retail investors are showing an increased interest in individual stocks, with General Electric emerging as a popular choice due to its improved performance after separating its financial operations.
As interest rates remain high, large banks are seeing a boost in revenue. They can charge higher rates on loans and pay lower rates on deposits. Smaller banks, however, are squeezed as their funding costs increase. These banks are also facing challenges with commercial real estate loans becoming due this year. The shifting interest rate landscape is expected to benefit large banks like JPMorgan Chase, while smaller banks like Valley Bank face challenges.
Turkey's inflation rate has soared to an alarming 67%, driven by rising costs in hospitality, health, education, and transportation. The surge in inflation has raised concerns about further interest rate hikes, despite earlier assurances to the contrary, and has put pressure on the lira. Food prices have also skyrocketed, exacerbating the financial strain on Turkish households. While experts predict inflation will decline in the long term, policymakers face pressure to address the issue before local elections.
