US Market weekly: Stock Markets Plunged 5% Post Fed Rate Hike
It was another painful week for the equity investors. The S&P 500 closed down 5.8% for the week, with all 11 of its sectors finishing more than 15% below their recent highs. The Dow closed down 4.8% for the week, its 11th negative week in 12. The tech-heavy Nasdaq Composite also slipped 4.8%.
The US stocks entered a bear market on Monday as the S&P500 closed more than 21% below its all-time highs of January. The Bond yields soared as investors braced for the Federal Reserve to increase interest rates.
The stocks dipped further into the bear market territory on Tuesday. The rates surged as investors braced for further rate hikes from the Federal Reserve. It was the fifth day of declines for the broad-market index. The 10-year rate topped 3.48%.
The US stocks rallied on Wednesday after the Federal Reserve hiked rates by 75 basis points - its largest increase since 1994. All major sectors aside from energy ended the day higher. Consumer discretionary saw the biggest gain, jumping 3%.
The US market tumbled on Thursday as investors worried the Federal Reserve’s aggressive approach toward curbing inflation would bring the economy into a recession. The Dow Jones Industrial Average closed below the 30,000 level for the first time since January 2021.
The market bounced back on Friday as it attempted to find footing following a brutal week of selling. Stocks were volatile during the trading day, switching between gains and losses as investors grew increasingly worried about a potential economic slowdown.
Key highlights of the week:
Interest Rate hike - The Federal Reserve raised its benchmark interest rates three-quarters of a percentage point in its most aggressive hike since 1994. FOMC members indicated a much stronger path of rate increases ahead to arrest inflation. The Fed officials also significantly cut their outlook for 2022 economic growth, now anticipating just a 1.7% gain in GDP, down from 2.8% in March.
Yield curve - The yield curve (10-year rates minus two-year rates) has flattened dramatically this week as short-term rates spiked to reflect larger anticipated rate hikes from the Fed while longer-term rates rose less. It is an indication of an outlook for weaker economic growth.
Housing market sees impact - The housing market saw the impact of rising mortgage rates this week. Building permits fell 7% in May to their lowest level since last September, while housing starts sank 14.4%, the biggest drop since the onset of the pandemic.
Treasury yields - The benchmark 10-year Treasury note touched 3.49% this week, its highest level in more than a decade. The 10-year yield closed the week at 3.24% on Friday. The 2-year yield which is typically more sensitive to monetary policy changes increased to 3.157%.