Investors abandon the market in response to persistently rising prices and Russia’s attempts to intensify the conflict in Ukraine.
Friday saw a global wave of financial market selling, forcing anxious investors to face the threat of a recession once more.
New indications of slowing global growth shook all types of assets. The dollar rose, the Dow Jones Industrial Average hit its lowest point of the year, and short-term Treasury rates increased.
This week, investors have deserted the market in response to persistently rising inflation and concerns over Russia’s efforts to intensify the conflict in Ukraine. This has caused a simultaneous selloff in both equities and bonds. Bond rates stayed close to their highest levels as prices fell for almost a decade.
The Dow closed at 29590.41, its lowest level since November 2020, after losing 486.27 points, or 1.6%, on Friday. To reach 3693.23, the S&P 500 lost 64.76 points or 1.7%. To reach 10867.93, the Nasdaq Composite dropped 198.88 points or 1.8%.
A pre-market primer stuffed with information, ideas, and trends. Additionally, current market statistics.
The S&P 500 and the Dow have lost about 8%, while the three indices have fallen for two weeks. Since June, they were their worst two-week falls. During the market crisis brought on by the pandemic, the Nasdaq has dropped more than 10% in the last two weeks, the most since March 2020.
Since Federal Reserve Chairman Jerome Powell’s address at Jackson Hole, Wyoming, in August, there has been a period of instability that this week’s steep selloff has prolonged. He reaffirmed the central bank’s intention to battle inflation by gradually raising interest rates.
The remarks contributed to the demise of a fleeting summer rally.
After the Fed’s resolve to battle inflation became even more evident this week, many investors are preparing for further volatility. On Wednesday, the central bank recommended raising interest rates by 0.75 percentage points for the third time. This maintained the most aggressive pace of rising in decades and boosted the benchmark federal funds rate to levels last seen in early 2008.
Furthermore, Fed officials predict rates will rise much farther than initially expected, frightening investors who had bet on a change in policy for next year. Many fear the U.S. may enter a recession due to the Fed’s rapid rate rises.
On Friday, the leading U.S. market indices fell for the fourth straight day.
According to Mike Smith, portfolio manager of All spring Global Investments, “It’s been a challenging week.” “Everyone is in pain.”
According to Mr. Smith, the significant decline was caused by a sudden change in investor willingness to pay for equities in the U.S. stock market due to rising bond rates.
Business surveys released on Friday revealed a dramatic decrease in European economic activity in September, underscoring how growth outside of the United States has also been thrown off track. In the meantime, a once-in-a-generation surge in the value of the U.S. dollar threatens to exacerbate the slowdown in global growth and effectively export inflation worldwide.
Borrowing prices have increased thanks to global central banks, including Norway, Switzerland, and South Africa. Investor hopes for a “soft landing,” or merely a little slowdown in GDP rather than a full-blown recession, have been further dashed by the worldwide commitment to tightening monetary and fiscal policies.
Antoine Bouvet, a senior rates analyst at ING, says, “all central banks are singing from the same hymn sheet: They’re attempting to be on top of inflation no matter what.” The Fed “clearly set the tone…they will continue regardless of the economic hardship imposed on the economy.”
The Stoxx Europe 600 index for all of Europe fell 2.3%, hitting its lowest point since December 2020.
U.S. stocks finish broadly down as the Dow drops to a 52-week low.
Bond rates rise due to economic uncertainty, but oil prices decline. Supply-chain concerns delay shares of Ford fall as F-Series truck deliveries and other models. According to J.R. Whalen. View Transcription
Bonds often provide a safe shelter for anxious investors when markets decline. However, prices for both have been falling this year, an odd combination that emphasizes how concerned many purchasers are and how drastically different the investing climate has been throughout the year’s first nine months. The 10-year Treasury and two-year Treasury yields are once more hovering at levels not seen in more than ten years.
This week, the 10-year U.S. Treasury yield increased to 3.695%, marking the eighth week that it has grown. 4.212% was the highest two-year Treasury yield since October 2007. Bond prices decline when yields increase.
Ariel Investments co-portfolio manager Micky Jagirdar stated, “There is a regime transition underway.” “Under the previous administration, taking risks was rewarded.”
Because the Fed is less likely to intervene to support markets, he claimed that doesn’t appear to be the case any longer.
Concerns that inflation and sluggish growth are starting to cut into business profitability have recently been raised by U.S. corporations such as automaker Ford Motor Co and transportation behemoth FedEx. Most of this year, earnings have performed better than anticipated, supporting markets.
European government bonds were also swept by selling, led by the U.K. after the government of new Prime Minister Liz Truss unveiled tax cuts that will require £72.4 billion, equivalent to about $81.5 billion, in new borrowing.
Investors fear the aggressive stimulus will worsen the U.K.’s inflation problems and force the Bank of England to adopt a more forceful policy stance.
“Confidence in a coherent U.K. policy in these inflation-laden times is going up in smoke,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown in London.
Some analysts questioned if investors had grown too pessimistic about the stock market after a selloff that dragged the S&P 500 down 23% this year. “I would just lean the other way and say maybe, just maybe, we’re seeing the peak of negativity,” Mr. Smith said, pointing to depressed consumer and investor sentiment levels.
In commodity markets, oil prices fell to their lowest levels since January. Brent crude, the global benchmark, declined 4.8% to $86.15. Investors fear a slowing economy will weigh on demand for crude.
The Japanese yen on Friday resumed its decline against the dollar, just a day after the country intervened to boost its value for the first time since 1998.
Stocks in Asia also declined. Hong Kong’s Hang Seng Index lost 1.2%, while the Shanghai Composite Index slipped 0.7% in mainland China. Japanese markets were closed for a holiday.