Investors got some relief Friday after a brutal turn of losses, but Wall Street still closed out its worst week since the chaotic early days of the coronavirus pandemic, as the Federal Reserve’s aggressive push to tame inflation — and the danger of sparking a recession — began to settle in.
Stocks stem losses but still close out worst week since March 2020
The Dow Jones Industrial fell 38 points, or 0.1 percent, a day after the blue-chip index dropped below 30,000 for the first time since January 2021. The S&P 500 rose 8 points or 0.2 percent, while the tech-heavy Nasdaq climbed 152 points or 1.4 percent.
Investors are still grappling with the Fed’s momentous decision to raise interest rates by three-quarters of a percentage point. The move has far-reaching consequences for consumers, because it makes it more expensive to borrow money and carry a credit card balance. New data released Wednesday also pointed to a bumpier road ahead, complete with higher unemployment, slower economic growth and record-high prices that will take longer to come back down.
Mortgages, for example, got significantly more expensive this week: A 30-year fixed-rate mortgage hit 5.78 percent this week, according to Freddie Mac. Just a week ago it was 5.23, notching the biggest one-week jump since 1987.
“The housing market isn’t crashing, but it is experiencing a hangover as it comes down from an unsustainable high,” said Redfin deputy chief economist Taylor Marr, in a blog post Thursday. “Housing demand has already cooled significantly to the point that the industry has begun facing layoffs. This week’s rate hikes will further stretch home buyers’ budgets to the point that many more may be priced out,” he said.
Rates have nearly doubled in recent months: A 30-year fixed-rate loan, the most popular option, was close to 3 percent in November. The difference would raise the monthly mortgage on a $500,000 home by roughly $700, a Washington Post analysis shows. Over the life of the loan, the rate increase tacks on an additional $256,000 in payments, or more than half the price of the home.
The U.S. median home price was $391,200, according to the latest data from the National Association of Realtors, published last month.
“While a lot of home sellers are already dropping their prices, more homeowners will likely decide to stay put now that the mortgage rate on a new home is significantly higher than their current one,” said Redfin’s Marr.
Americans brave enough to glance at their 401(k)s or other investment accounts were probably met with some ugly math. Portfolios spanning nearly every sector have suffered declines, and color coded grids showing the wins and losses of stocks flashed a solid wall of red. The S&P 500, a key benchmark for measuring financial performance over time, has lost nearly a quarter of its value this year.
The broad index fell 5.8 percent for the week, its steepest loss since the outset of the public health crisis in March 2020. The Nasdaq and the Dow have both dropped 5 percent for the week, highlighting the pessimism seeping into Wall Street.
S&P 500 has worst week
since March 2020
Monday kicked off a bear market
after higher-than-expected
inflation data
Stocks fall
following the Fed’s
interest rate hike
June 10
4 p.m.
June 15
4 p.m.
June 17
4 p.m.
Source: Bloomberg
S&P 500 has worst week
since March 2020
Monday kicked off a bear market
after higher-than-expected
inflation data
Stocks fall following
the Fed’s interest rate hike
and a rise in mortgage rates
June 10
4 p.m.
June 15
4 p.m.
June 17
4 p.m.
Source: Bloomberg
But it’s not just investor sentiment that has turned sour. Higher interest rates are designed to strong-arm American consumers to spend less of their money, cooling demand for products and services. While Fed Chair Jerome H. Powell has defended the decision to aggressively raise interest rates to contain inflation, some experts worry the strategy could amount to an overreaction and yank the economy into a recession later this year or in 2023. More rate hikes are expected in the months ahead, but they may come in smaller increments.
Investors will also look to next quarters’ corporate earnings to gauge how executives are interpreting a potential economic downtown. Many U.S. management teams are planning for obstacles ahead as heightened costs and the uncertainty over inflation slows demand for their products.
“These latest signals come on the back of slashed projections from economists across the globe as expectations for growth have been tempered by a cocktail of persistent supply chain shortages, high inflation and heightened geopolitical uncertainty,” said Nicole Tanenbaum, a partner and chief investment strategist Chequers Financial Management.
Richard Saperstein, chief investment officer of Treasury Partners, said the market is reacting to the uncertainty over the Fed’s efforts to tame inflation. But he said an additional concern remains the unpredictable events tied to the ongoing war in Ukraine which the market has not fully considered.
As Wall Street whipsaws, gas prices continue to spike while inflation has yet to peak, according to the latest data that may have surprised policymakers hoping for cooling prices. But the economy has added several million jobs this year and consumer spending remains robust. The conflicting signals present a puzzle to analysts and political leaders and highlight the uncertainty over the future of the economy.
Source: WP
