Market week: Recession fears dog markets

Indexes sink into bear markets as Fed hikes rates

Stocks sold off sharply this past week as the U.S. Federal Reserve Board raised its benchmark policy rate by 75 basis points to a range between 1.50% and 1.75%. The Fed’s action comes after the U.S. consumer price index rose at an annual 8.6% rate in May with no signs of cooling off. Fed Chair Jerome Powell stated on Friday that the Fed remains focused on returning inflation to the Fed’s 2% objective.

With U.S. gross domestic product already contracting in the first quarter, investors see the Fed’s continuing aggressive moves to raise rates and tighten monetary conditions as a prelude to further economic slowdown, with increasing risk that the economy could sink into a recession in the next year (generally defined as two consecutive quarters of negative growth).

The major U.S. stock indexes have declined into bear markets, with the S&P 500 Composite Index dropping 5.8% on the week, for a 22.9% year-to-date loss. Energy (-17.2%), utilities (-9.2%), and materials (-8.3%) led the decline this week. Similiarly, the Nasdaq Composite Index fell 4.8% on the week, as the tech selloff continued, and is now down 31% year to date. The fear factor has also infected the crypto-currency market, with bellwethers Bitcoin down 29% in the past week and Ether sliding 36%.

Canada’s benchmark S&P/TSX Composite Index retreated 6.6% on the week, for a year-to-date loss of 10.8%. With a 14% drop from recent highs, the index is now firmly in correction territory. The energy sector weighed heavily on index performance during the week, dropping 13.9%, as crude oil slid 8.3% on the week. Adding additional downside pressure to the S&P/TSX, gold lost 1.8% on the week.

Monitor the main stock and commodity indexes daily with the Fund Library’s interactive Markets Page.

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Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.