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Strong Selling Pressure Sparked by Global Economic Slowdown

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U.S. stocks tumbled in trading this afternoon with selling pressure a result of multiple factors.

After producing respectable gains throughout the week, U.S. equities reacted to two major events, as well. First, market participants reacted to the statement released by the Federal Reserve yesterday from this month’s FOMC meeting.

Second, data suggested a “hotter-than-expected” reading on producer prices and continued selling pressure in oil.

Market participants received confirmation that the Federal Reserve will continue its more hawkish stance. The current monetary policy continues to run towards the direction of quantitative normalization and rising interest rates moving to a target rate of approximately 3%.

Although yesterday’s statement indicated that the Fed would stay the course this month and keep interest rates between 2% and 2.25%, the statement suggested that the central bank “expects further gradual increases in the target range for the Federal funds rate.”

This raises the probability that the Fed will implement yet one more rate hike this year in December of 0.25% to 0.5%.  If implemented next month, it would be the third rate hike initiated by the Federal Reserve this year. This would result in the most aggressive year of interest rate hikes by the Fed since it ended its quantitative easing program and began to move towards a monetary policy of quantitative normalization slowly.

As reported by MarketWatch, “The policy-setting Federal Open Market Committee delivered no surprises to Wall Street investors. However, investors will continue to wrestle with policymakers’ hopes to normalize interest rates after a decade of easy-money policies”.

Today’s report detailing a hotter than expected reading on producer prices fueled major concerns that the global economy at large is slowing down. Concerns about the overall demeanor of the global economy resulted in a fairly strong selloff in U.S. equities across the board.

Crude oil prices closed in corrective territory on Thursday as they dropped over 20% from the recent highs which led to a cascade of falling equities pricing today. The Dow Jones Industrial Average fell by 200 points and closed at 25,889, a net decline of about 0.75%. The NASDAQ composite lost over 1.25% resulting in a drop of 124 points, with the tech heavy index closing at 7406.90.

The precious metals complex came under dynamic pressure along with other commodities with gold futures losing $15 in trading today (-1.22%) closing at $1,210.10. Silver lost over 2% in trading giving up almost $0.30 and closing at $14.13. Platinum and palladium both suffered strong losses today with both of the precious white metals giving up approximately 1.5% in value.

Spot gold lost $14.50 in trading today and settled at $1,209 per ounce. On closer inspection, we can see that the vast majority of these declines can be directly attributed to market participants bidding the precious yellow metal lower, accounting for $11.60 of today’s decline, with the remaining decline of $2.90 attributable to dollar strength.

Today’s unexpected selloff in commodities and US equities could be indicating the beginning of more concentrated selling pressure.

At best today’s decline will certainly create daunting pressure that will be necessary to overcome next week for precious metals and equities to regain support and solid footing.

Wishing as always, good trading,

Gary S. Wagner - Executive Producer