At the rate at which things are moving, the S&P 500 index might retest its low levels seen in June in the coming weeks. The stock market is putting up with a lot of selling induced by concerns that the US Federal Reserve’s campaign against inflation could lead to a recession.
The Markets are Still in Shock
The move by the US Feds to raise interest rates by 75 basis points last week for the third consecutive time and clues that there might be more to more sent a shock among investors. The shock became solidified as other central banks followed the leading of the US and raised their rates too.
The Federal Reserve’s Chairman, Jerome Powell, said after the announcement of the rate increase, that the possibility of a soft landing is fading. He said further that no one knows if the rate increases would cause a recession or how the recession would affect the economy if it came to that.
Stocks in the US fell on Friday as the major index recorded five losses out of six in the week. The Dow lost about 4% by the end of the week and reached a new 2022 low level when it slipped into bearish zones in the course of the session.
The S&P 500 index dropped 4.6% within the same period as it hovered close to its low of the 16th of June at 3,666.77. It eventually ended Friday at 3,693.23. Nasdaq and its tech-heavy stocks lost about 5.1%.
The Macro Outlook and a Possible Recession
The concerns about a possible recession equally went beyond stocks. The two-year Treasury bonds which react easily to rates rose above a new fifteen-year height of 4.2% as the week closed. The ten-year yields also rose above 3.7% and became the highest level seen since 2011. The US Dollar rose to the highest level since 2002 while oil prices fell under $80.
Marl Cabana of the Bank of America compared the current market situation to what happened in March 2020 when the pandemic spiked the global economy even without being backed by policies. He said that central banks are not being helpful as the market is aware that they will keep increasing rates till something gives.
Cabana said further that the Federal Reserve is increasing rates at the fastest rate in recent history with a lot of uncertainties on the general outlook. This is synonymous with driving at top speed without knowing how the road turns; an accident might happen, he added.