Week 24 in Brief
The S&P 500 and the Nasdaq Composite bounced on Friday as Wall Street attempted to find footing following a brutal week of selling. The decline was after The Federal Reserve raised its benchmark interest rate by 75 basis points, the most since 1994. All the major averages ended the week in the negative, with the S&P 500 posting its worst week since 2020.
How did the major indices perform?
- The S&P 500 closed the week 226.02 points lower to 3,674.84, or a 5.8% decline.
- The Dow was down 1,504.01 points to 29,888.78 for the week, or a 4.8% fall.
- The Nasdaq declined 541.67 points to 10,798.35, or a 4.8% fall for the week.
- The Russell 2000 also declined 134.59 points to settle at 1,665.69, or a 7.5% fall.
What drove the U.S. market?
- Stubbornly high inflation unnerved investors this year as the U.S. Federal Reserve, and most major central banks have begun to pivot from easy monetary policies to tightening measures that will slow the economy, possibly causing a recession and potentially dent corporate earnings.
- The Federal Reserve raised its benchmark interest rate by 75 basis points, the most since 1994.
- Markets on Friday encountered a “quadruple witching.” This refers to the simultaneous expiration of stock index futures, single-stock futures, stock options, and stock index options, which happens once a quarter. It typically leads to a surge in trading volume, making for choppy trading action or volatility as traders close out positions.
- Beaten-up tech shares staged a rally on Friday. Shares of Amazon jumped 2.5%. Apple, Nvidia, Tesla, and Netflix added more than 1%.
- Several key pieces of economic data fell short of forecasts this week, ranging from May retail sales to housing starts.
How did the European markets perform?
- European stocks edged higher on Friday but posted their third straight week of losses as a slew of interest rate hikes from major central banks fuelled worries about a sharp economic slowdown.
- The pan-European STOXX 600 index (.STOXX) rose 0.1% on Friday in volatile trade but ended the week 4.6% lower.
- The STOXX 600 has shed about 17.3 percent so far this year on worries over the deteriorating economic outlook and hit to corporate earnings from surging prices, as well as aggressive tightening measures by central banks.
- The French CAC 40 Index tumbled by 2.4 percent, and the U.K.’s FTSE 100 Index and the German DAX Index plunged by 3.1 percent and 3.3 percent, respectively.
- In London, the FTSE 100 index erased early gains to close 0.41 percent lower at 7,016.25, with oil majors Shell PLC and BP PLC, and miners weighing the most on the index. It posted a weekly drop of 4.12 percent — its third straight week of declines.
- Several regional markets are nearing or have marked a 20 percent decline from their recent peaks, a commonly used definition of a bear market.
- Among the worst-hit European sectors this week were technology, retail, and commodity-linked sectors such as oil and gas and miners.
- Growing worries about a recession after rate increases in the United States and Britain were followed by a surprise move in Switzerland to quell an inflation surge.
- Eurozone inflation rose to a record high of 8.1% last month, in line with a preliminary estimate, more than four times the European Central Bank’s target and underscoring its plans to raise interest rates next month.
How did Asian markets perform?
- The Japanese stock market was sharply lower on Friday, giving up the gains in the previous session, with the benchmark Nikkei 225 falling below the 25,900 level with losses across all sectors amid global recession fears and ahead of the Bank of Japan’s monetary policy decision later in the day.
- The Australian stock market was also sharply lower on Friday, extending the losses in the previous five sessions, with the benchmark S&P/ASX 200 sinking to 19-month lows to stay above the 6,400. Gold miners were the only bright spot.
- The benchmark S&P/ASX 200 Index lost 153.30 points or 2.36 percent to 6,437.80 on Friday after hitting a low of 6,410.40 earlier. The broader All Ordinaries Index was down 160.20 points, or 2.36 percent, to 6,623.50. Australian markets ended slightly lower on Thursday.
Bonds and Commodities
- Today’s bonds are already edging towards a bear market, with 2-year Treasury yields, which move inversely to prices, up 2.417 percentage points to 3.151% in 2022. 10-year Treasury yields are up 1.710 percentage points to 3.222% year-to-date.
- Yields on U.S. investment-grade bonds shot up nearly 5% this week from about 2% a year ago. They were pegged near 8.5% this week for high-yield or “junk bonds.”
- Crude oil prices settled higher on Thursday after prices rebounded as tight supply levels outweighed concerns about the outlook for energy demand. West Texas Intermediate Crude oil futures for July ended higher by $2.27 or 2 percent at $117.58 a barrel.
- Brent crude is on track for its first weekly drop in five weeks, and U.S. crude for its first decline in eight weeks.
- The dollar index, which measures the currency against a basket of six rivals, was up 0.732% at 104.64, putting it on track for a weekly rise of around 0.4% ahead of a long weekend in the United States.
- Sterling dropped 0.99% to $1.2229, giving back most of its gains from when the Bank of England decided to lift rates again
- The Japanese yen tumbled against the dollar on Friday after the Bank of Japan bucked a wave of tightening and stuck with its ultra-accommodative stance, adding to soaring volatility in currency markets hit by a series of rate hikes this week.
- The yen, which on Wednesday hit a 24-year low of 135.6 per dollar, plunged in reaction to the BOJ decision. The Japanese currency was last down 2.09% against the greenback at 134.885 yen and was 1.62% lower than the euro.
- The Australian dollar, which is very sensitive to the broad global investment mood, fell 1.53% to just under $0.6938 after stock markets in Asia tumbled
Next week will be a shortened trading week as markets close for the Juneteenth holiday in the U.S. on Monday. Fed Chair Jerome Powell will testify before Congress on Wednesday and Thursday as part of a semiannual testimony on monetary policy.
We can expect essential updates on the U.S. housing market, including new and existing home sales tracking for May. The June flash estimate of S&P Global’s Composite PMI Survey, along with the final reading of the University of Michigan’s Consumer Sentiment Index (MSCI), will be released on Thursday and Friday, respectively.
International updates on key economic indicators are also expected, with inflation updates for the U.K. and Japan and consumer confidence readings for the U.K. and eurozone. A number of firms, including Accenture, FedEx, Darden Restaurants, Rite Aid, and CarMax, among others, will be reporting earnings for the quarter that ended May.