Stocks Down Again
With many of the world’s major central banks rapidly raising interest rates, the major U.S. stock indexes fell for the fifth time in six weeks to levels near year-to-date lows. The latest losses of around 4% to 5% were similar in scale to the previous week’s steep declines. The S&P 500 closed on Friday at 3,693.2 for a loss of 4.6% on the week.
Since mid-August, the NASDAQ has tumbled more than 17%, the S&P 500 has dropped about 14%, and the Dow has fallen more than 13%. The indexes are all close to their levels of mid-June, prior to the rally that had sent stocks higher through much of the early summer.
For its third meeting in a row, the U.S. Federal Reserve sought to keep inflation in check by approving a 0.75 percentage point increase in its benchmark interest rate. The move pushed the rate to a range of 3.00% to 3.25%—a level last seen in 2008. Fed officials projected they would lift the rate by at least another 1.25% over the last two meetings of this year.
The yield of the 10-year U.S. Treasury bond climbed for the eighth week in a row, reaching around 3.69% on Friday. The yield is up from 3.45% at the end of the previous week and from 2.64% at the end of July. The inversion of the yield curve became more pronounced, as the 2-year Treasury yield rose to about 4.20%—the highest since 2007.
With recessionary fears growing, the price of U.S. crude oil dropped around 7% for the week, slipping below the $80-per-barrel mark for the first time since early January. As recently as early June, oil briefly traded above $120.
An index that measures investors’ expectations of short-term U.S. equity market volatility jumped about 14% for the week, climbing to the highest level since June. The CBOE Volatility Index (VIX) was up more than 50% from a recent low in mid-August.
The United Kingdom’s central bank, the Bank of England, raised its benchmark lending rate from 1.75% to 2.25%—a level last seen in 2008. It marked the seventh meeting in a row at which the bank has lifted rates.
A report scheduled to be released on Friday will be closely watched for any further signs that U.S. inflation may have peaked. The government will update its Personal Consumption Expenditures Price Index, the Fed’s preferred gauge for tracking inflation. The most recent monthly report showed that PCE inflation moderated at an annual rate of 6.3%, down from 6.8% in the previous month.
Source: John Hancock Investment Management
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