In this week’s recap: Fed rate hike triggers market dip.
Weekly Economic Update
Presented by John Glowacz & Jim Donewald, June 20, 2022
THE WEEK ON WALL STREET
Stocks moved lower last week as recession fears deepened following a Fed hike in interest rates and weak economic data.
The Dow Jones Industrial Average fell 4.79%, while the Standard & Poor’s 500 dropped 5.79%. The Nasdaq Composite index slid 4.78% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slumped 4.51%.1,2,3
Stocks were under pressure all week due to inflation worries, higher yields, and rising recession concerns. In advance of the much-awaited mid-week meeting of the Federal Open Market Committee (FOMC), bond yields jumped, and stocks retreated on speculation that the Fed might raise rates by 75 basis points. When the Fed announced a 75 basis point hike on Wednesday, stocks rebounded strongly.
The enthusiasm was short-lived. Stocks resumed their slide on Thursday as global central banks followed with their own rate hikes. Recession fears grew based on a weak housing starts report and a contraction in the Philadelphia Fed Business Index–the first contraction since May 2020.4
FED RATE HIKE
The Federal Reserve announced a 0.75% hike in the federal funds rate, making it the biggest rate increase since 1994 and signaling its commitment to address inflation. The report from last week’s FOMC meeting also indicated new rate projections, showing that all members expect rates to rise to at least 3.0% by year-end, with half the members expecting rates to rise to 3.375%.5
The 75 basis point rate increase was a late-developing change from earlier Fed guidance of a 50 basis point increase. The change of heart was in response to recent inflation data and rising inflationary expectations.6
T I P O F T H E W E E K
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THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Existing Home Sales.
Thursday: Jobless Claims. Purchasing Managers’ Index (PMI).
Friday: New Home Sales. Consumer Sentiment.
Source: Econoday, June 17, 2022
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
THE WEEK AHEAD: COMPANIES REPORTING EARNINGS
Tuesday: Lennar Corporation (LEN).
Wednesday: KB Home (KBH).
Thursday: FedEx Corporation (FDX), Darden Restaurants, Inc. (DRI).
Source: Zacks, June 17, 2022
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.
Q U O T E O F T H E W E E K
“In memory everything seems to happen to music.”
T H E W E E K L Y R I D D L E
It has 18 legs, is uniformed, walks and runs on grass and artificial turf, and catches flies. What is it?
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Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
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1. The Wall Street Journal, June 17, 2022
2. The Wall Street Journal, June 17, 2022
3. The Wall Street Journal, June 17, 2022
4. CNBC, June 16, 2022
5. The Wall Street Journal, June 15, 2022
6. The Wall Street Journal, June 15, 2022