Wall Street finishes its worst week since 2020

Wall Street finishes its worst week since the 2020 pandemic crash as S&P, Dow and Nasdaq all slump in market shudder at Fed’s rate hike

  • The S&P 500 posted its worst week since pandemic crash in March 2020
  • The benchmark index dropped 5.8% for the week despite rising slightly Friday
  • Markets are shuddering after the Fed hiked interest rates by 75bps this week
  • Higher rates can bring down inflation, but they also risk a recession 

Wall Street has closed out its worst week since the COVID-19 pandemic crashed markets in 2020, despite a modest bounce on Friday.

For the week, the Dow Jones Industrial average was down 1,504 points, or 4.8 percent. The S&P 500 lost 5.8 percent and the Nasdaq dropped 4.8 percent.

It marks the S&P’s worst week since March 2020, when stocks were in free-fall as the global economy suddenly shut down at the onset of the pandemic.

Markets around the world have been shuddering as investors adjust to the bitter medicine of higher interest rates, after the Federal Reserved jacked up its policy rate by 75 basis points to fight soaring inflation. 

Higher rates can bring down inflation, but they also risk a recession by slowing the economy, and push down on prices for stocks, bonds, cryptocurrencies and other investments.

The S&P 500 lost 5.8 percent this week despite a slight bounce in Friday’s session

The Dow was down 1,504 points, or 4.8%, for the week after another brutal selloff

A trader is pictured looking upset in New York City this week after the United States’ biggest indexes all experienced their worst slump since COVID hit US shores in 2020 

‘Any lack of clarity or lack of confidence in the Federal Reserve is going to create a lot of volatility in the market,’ said Megan Horneman, chief investment officer at Verdence Capital Advisors.

Friday’s trading was relatively muted following the rocky week, with the S&P gaining 0.2 percent on the day, the Dow dropping 0.1 percent, and the Nasdaq gaining 1.4 percent.

The S&P 500 remains in a bear market after it earlier this week dropped more than 20 per cent below its record. It´s now about 23 per cent below its all-time high set in January and is back to where it was in late 2020.

‘There’s a lot of uncertainty right now about the timing of a recession, but the risks are clearly rising,’ Horneman said.

On Wednesday, the Fed hiked its key short-term interest rate by triple the usual amount for its biggest increase since 1994. It could consider another such mega-hike at its next meeting in July, but Fed Chair Jerome Powell said increases of three-quarters of a percentage point would not be common.

The Fed has also just begun allowing some of the trillions of dollars of bonds it purchased through the pandemic to roll off its balance sheet. That should put upward pressure on longer-term interest rates and is another way central banks are yanking supports propped underneath markets to bolster the economy early in the pandemic.

The Fed’s moves are happening as some discouraging signals have emerged about the economy, such as weakening sales at U.S. retailers, even if the jobs market remains solid. That has raised concerns the Fed’s actions could wind up being too aggressive.

Powell will testify before Congress this upcoming week on monetary policy, and what he says is sure to guide trading. The testimony is scheduled for Wednesday and Thursday, which could mean more steep swings for Wall Street.

NASDAQ: The Nasdaq also rose during early trading hours after a rough close on Thursday night

S&P 500: Meanwhile the S&P 500 started off well on Friday morning, despite also taking a battering this week 

DOW JONES: The Dow Jones showed signs of improvement first thing Friday after a turbulent week

Traders work on the floor at the New York Stock Exchange in New York, Thursday, June 16

In the six days since a game-changing report showed U.S. inflation is accelerating, not easing as investors had hoped, the S&P 500 has had three days where it tumbled at least 2.9 per cent. That’s happened only five other times total in the last year.

For Friday at least, trading was calm as Treasury yields eased further from their highest levels in more than a decade and a measure of nervousness on Wall Street sank.

The yield on the 10-year Treasury pulled back to 3.23 per cent from 3.30 per cent late Thursday and from a peak of nearly 3.50 per cent earlier in the week.

Higher yields have been pounding all kinds of investments this year, but the harshest pain has hit cryptocurrencies, high-growth technology stocks and others that flew the highest in the earlier, easier days of ultralow rates.

Gains for technology stocks on Friday helped the Nasdaq lead the market. Microsoft climbed 2 per cent, and Amazon climbed 2.6 per cent.

Other stocks hit particularly hard Thursday on worries about a possible recession and inflation overwhelming consumers were also bouncing back. Norwegian Cruise Line rose 9.4 per cent, and American Airlines Group gained 6.8 per cent. Both are still down more than 10 per cent for the week, though.

Stocks of smaller companies, which tend to move more with expectations for the strength of the U.S. economy, were also doing better than the rest of the market. The Russell 2000 index of smaller stocks was 1.3 per cent higher, but it also was still down much more for the week than the broader market.

U.S. markets will be closed Monday in observance of the Juneteenth holiday.

Three quarters of CEOs expect global recession within next 12 to 18 months due to Putin’s war on Ukraine and fear Russian cyberattacks could make it WORSE, survey shows

  • The vast majority of bosses fear economic decline is looming or already hitting
  • They are concerned impact could be even more disastrous depending on Putin
  • They said that the invasion will keep battering companies and workers globally
  • It comes as Joe Biden again tried to downplay the threat of a recession on US
  • The President claimed that it was ‘not inevitable’ despite economists’ warnings

Three quarters of global business leaders are expecting a global recession within the next 12 to 18 months due to Russia’s brutal war in Ukraine, a survey has warned.

The vast majority of CEOs fear economic decline is looming or already hitting countries across the world amid the vicious invasion, the report said.

But bosses are concerned the impact could be even more disastrous as many predict a tsunami of cyberattacks by despot Vladimir Putin.

Meanwhile they said the war will continue to batter companies and workers globally amid a cost of living crisis sparked by skyrocketing inflation.

It comes as Joe Biden again tried to downplay the threat of a recession by saying it was ‘not inevitable’ despite economists’ warnings.

The President instead shifted the focus to American’s mental health and suggested people were ‘really, really down’ because of the pandemic.

His comments were prompted after the Federal Reserve hiked interest rates by a staggering 0.75 per cent earlier this week.

The move caused a turbulent week on Wall Street as the stock market reacted with uncertainty to the drastic measure.

Oil companies hit back after Biden blamed surging gas prices on their profit ‘greed’

Oil companies have hit back against Joe Biden after the president accused them of intentionally exacerbating the strain on Americans’ pocketbooks after the average price of gas per gallon surpassed $5.00.

Exxon and Chevron said the Biden administration could be doing more to address the surging oil prices, accusing the president of ‘imposing obstacles to our industry to deliver energy resources’. 

The president sent letters on Wednesday to Marathon Petroleum Corp, Valero Energy Corp., ExxonMobil, Phillips 66, Chevron, BP, and Shell to demand action on lowering gas prices at the corporate level and account for the surge.

He demanded the oil refining companies to explain why they are not putting more fuel on the market as they reap windfall profits.  

In a letter to Exxon obtained by Axios, Biden wrote that the difference ‘of more than 15% at the pump is the result of the historically high profit margins for refining oil into gasoline, diesel and other refined products.’

Biden also said last week Exxon made ‘more money than God last year’ as he attacked oil companies for not paying taxes and making large profits while gas prices spike.

The Conference Board survey found as much as 76 per cent of CEOs across the world expected their areas to fall into recession or feel one has already hit.

The study, which interviewed 750 CEOs, demonstrates a huge shift from a year ago when just 22 per cent expected an economic fallout.

Ilham Kadri, CEO of Solvay SA, a Brussels-based chemical maker, told the Wall Street Journal: ‘We need to be prepared for tougher times.’

CEO of KPMG US Paul Knopp said Russia’s attacks on Ukraine as well as supply chain issues and Covid are ‘creating some uncertainty in terms of the outlook’.

Johnson Controls International PLC CEO George Oliver added: ‘Any time you see energy costs—and the impact that has on cost of goods, and transportation—those fundamentals, obviously, from an economic standpoint, matter.’

Most bosses fear higher energy prices will have a huge knock on effect on their business, with rising transport costs ramping up the cost of goods.

Some have already cut back on hiring in preparation for a turbulent period, including Facebook’s parent company Meta.

Chief Economist at The Conference Board Dana Peterson said: ‘Historically high energy prices, renewed supply chain disruptions, heightened geopolitics risks, and eroding consumer confidence are all putting downward pressure on global growth.

‘That’s on top of lockdowns in China and the cascading ripple effects of the war in Ukraine.

‘These disruptions, along with restrictive monetary and fiscal policy decisions, are fueling recession expectations—with nearly 8 in 10 CEOs expecting their primary region of operations to be in recession within 12 to 18 months, if not already underway.’

The survey was carried out in May, before the Fed hiked interest rates by 0.75 per cent but as the war in Ukraine was already biting worldwide.


Left: CEO of KPMG US Paul Knopp said Russia’s attacks on Ukraine as well as supply chain issues and Covid are ‘creating some uncertainty in terms of the outlook’. Right: Johnson Controls International PLC CEO George Oliver added: ‘Any time you see energy costs—and the impact that has on cost of goods, and transportation—those fundamentals, obviously, from an economic standpoint, matter’

Mortgage rates hit 5.78% – the largest weekly increase since 1987

Average long-term U.S. mortgage rates had their biggest one-week jump in 35 years with the Federal Reserve this week raising its key rate by three-quarters of a point in bid to tame high inflation.

Mortgage buyer Freddie Mac reported Thursday that the 30-year rate climbed from 5.23% last week to 5.78% this week, the highest its been since November of 2008 during the housing crisis.

Wednesday’s rate hike by the Fed was its biggest in a single action since 1994.

The brisk jump in rates, along with a sharp increase in home prices, has been pushing potential homebuyers out of the market.

Mortgage applications are down more than 15% from last year and refinancings are down more than 70%, according to the Mortgage Bankers Association.

Those figures are likely to worsen with more Fed rate increases a near certainty.

Biden last night again made a thinly-veiled attempt to shift the blame for the disaster facing the US economy.

He said Americans are ‘really, really down’ amid record inflation and the fallout from the pandemic – but said a recession is ‘not inevitable.’

He made the comments in a 30-minute interview – his first formal one since February, adding NBC interviewer Lester Holt was a ‘wise guy’ over inflation remarks.

The President bristled at claims by Republican lawmakers last year’s Covid aid plan was fully to blame for inflation reaching a 40-year high, calling it ‘bizarre.’

As for the overall American mindset, Biden said, ‘People are really, really down.’

‘They´re really down,’ he said. ‘The need for mental health in America, it has skyrocketed, because people have seen everything upset.

‘Everything they´ve counted on upset. But most of it’s the consequence of what’s happened, what happened as a consequence of the COVID crisis.’

The interview signaled a new effort to get his economic message out. Biden also addressed warnings the US could be headed for a recession.

‘First of all, it’s not inevitable,’ he said. ‘Secondly, we´re in a stronger position than any nation in the world to overcome this inflation.’

The president said he saw reason for optimism with the 3.6 per cent unemployment rate and America´s relative strength in the world.

‘Be confident, because I am confident we´re better positioned than any country in the world to own the second quarter of the 21st century,’ Biden said. ‘That´s not hyperbole, that´s a fact.’

President Joe Biden speaks during an interview with the Associated Press in the Oval Office of the White House, Thursday, June 16, 2022, in Washington. (AP Photo/Evan Vucci)

President Joe Biden speaks during an interview with the Associated Press in the Oval Office of the White House, Thursday, June 16, 2022, in Washington. (AP Photo/Evan Vucci)

The high inflation rate has resulted in increased prices of food, gas and housing – areas that affect most Americans

ANOTHER Crypto lender stops customers withdrawing their money

A Hong-Kong based crypto-lender has suspended withdrawals amid a wide-scale downfall in the market.

Babel Finance said it is ‘facing unusual liquidity’ in a statement on its website.

Babel are the third major lender to freeze withdrawals in recent days after major U.S. cryptocurrency lending company Celsius Network froze withdrawals and transfers citing ‘extreme’ conditions on June 12.

Crypto has been sharply decreasing in value in recent weeks including one currency that has lost 98% of its value as fears for the global economy spread and investors start to sell off risky assets.

Crypto value dropped below $1 trillion on Monday for the first time since January 2021, dragged down by 11 per cent fall in Bitcoin.

Babel were reported to have an outstanding loan balance of $3 billion at the end of 2021. 

His comments came just days after the Fed hiked interest rates by 0.75 per cent causing markets to fluctuate on Wall Street.

The move will increase its benchmark short-term rate, which affects many consumer and business loans, to between 1.5 percent and 1.75 percent.

The result will drive up loan rates for homes, cars, credit cards and other items – making it much more expensive to borrow money.

The central bank has been steadily increasing interest rates in an attempt to bring down inflation, which sits at 8.6 percent.

The high inflation rate has resulted in increased prices of food, gas and housing – areas that affect most Americans.

The Fed is tasked with keeping prices at managing levels.

‘We’re strongly committed to bringing inflation back down. And we’re moving expeditiously to do so,’ Chairman Jerome Powell said at a press conference.

He said the central bank wants to see inflation get down to two per cent from a record eight percent.

Powell had suggested last week that a higher than expected hike in interest rates was coming.

The stock market rallied after the official announcement – the S&P 500 was 1.9 percent higher, Dow Jones gained 397 points and Nasdaq was 2.7 percent higher.

‘It is essential that we bring inflation down if we were to have a sustained period of strong labor market conditions,’ he said.

He warned more hikes could be coming and that inflation could get worse before it gets better.

The Feds up the interest rate 75 points and said to expect more in the coming months 

The move will increase its benchmark short-term rate, which affects many consumer and business loans, to between 1.5 percent and 1.75 percent. The result will drive up loan rates for homes, cars, credit cards and other items – making it much more expensive to borrow money

Prices of everything from gas to travel to hotels have gone up by double digits since January 2021

What Federal Reserve’s historic interest rate hike means for you: Higher rate will make it more expensive to buy a home or car, or carry credit-card balance 

WILL THIS MAKE IT MORE EXPENSIVE TO BUY A HOME?

One of the sectors the Fed has been watching closely is the interest-rate sensitive housing market, where prices have risen 38 percent since the start of the pandemic.

The surge has been driven by low borrowing costs, put in place by the Fed to cushion the economy from the COVID-19 pandemic, meeting an upsell in demand and a shortage of properties for sale.

Mortgage rates have already risen sharply since the Fed began signaling late last year it would likely tighten policy, with the average contract rate on a 30-year fixed-rate mortgage reaching 5.65 percent last week, the highest level since late 2008, the Mortgage Bankers Association reported earlier on Wednesday.

‘Mortgage rates are definitely going to go up over the next few weeks,’ said Matthew Pointon, senior property economist at Capital Economics, with daily mortgage data showing the average 30-year fixed rate now around 6.28 percent and possibly going above 6.5 percent over the next few weeks.

Worse is set to come, Pointon says, with mortgage rates probably not peaking until the middle of next year.

Mortgage rates were steadily dropping after the pandemic hit in 2020. They were low before soaring in 2021, hitting 5 percent in May

US home prices showed no signs of cooling off as the biggest shifts in mortgage rates came in March. The map above shows the top 10 cities for home price increases out of the 20-city composite index

If mortgages hit seven percent it means that for the average person trying to purchase a $400,000 home with a down payment of $10,000, they would be stuck with a $2,913 mortgage payment after the rate hike, a significant jump from the $2,730 before the increase.

And as mortgage rates soar, demand for homes are plummeting as real estate brokerages Redfin and Compass both announced layoffs on Tuesday.

‘Mortgage rates increased faster than at any point in history,’ Redfin CEO Glenn Kelman said in a statement. ‘We could be facing years, not months, of fewer home sales, and Redfin still plans to thrive.

‘If falling from $97 per share to $8 doesn’t put a company through heck, I don’t know what does.’

David Wood, who recently sold his $2.6 million home in South California, said he had gotten 93 groups visiting the house in one weekend alone, with seven people willing to pay above the asking price.

Preparing to move to New Jersey, Wood commented that there was little inventory for housing and that he had to compete among several others for a $2.5 million estate in Little Silver, with his cash offer being what helped him beat out the rest.

‘There’s so much competition for housing, it’s hard to find a home no matter who you are,’ Wood said. ‘Houses I was looking at would be off the market in three days.’

Real estate consultant Jonathan Miller, who prepared Douglas Elliman’s latest report on median rent in Manhattan hitting an all-time high of $4,000 per month in May, said the hike will have a direct impact on rent.

Miller said that as mortgage lending remains tight, there are fewer people able to qualify for homes in the suburbs around major cities who have been forced to join the pool of apartment hunters in New York City, Miami and Austin.

According to Redfin, the average rent in Austin had shot up to $2,245 in January 2022, a 35 percent spike over the last year, and Realtor.com found Miami’s average rent has shot up to nearly $3,000 in March, a 58 percent increase in the last two years.

Jacob Channel, a senior economist at Lending tree, said the market has become so wild, it’s become increasingly harder to predict what mortgage rates will be.

‘Given that they’ve already gone up so dramatically, it’s difficult to say just how much higher mortgage rates will go by year’s end,’ Channel told CNBC

WILL MY CREDIT CARD COSTS GO UP?

If you’ve got outstanding loans without fixed interest rates, the answer is a simple, yes. Though the Fed doesn’t control what banks or car dealers charge for such loans, credit card rates and auto loans typically rise when the Fed’s policy rate does.

Household debt has been rising rapidly, with consumer credit up more than 8 percent in the first quarter to $1.5 trillion, a recent Fed survey showed.

The hike will also play a major role in people’s ability to pay off debt, as the average interest rate on credit cards jumped to more than 19 percent.

The average American has about $6,000 in credit card debt, according to Experian Consumer Credit, with the new interest rates, consumers would have to pay $349 a month to pay off the debt in 24 months, a slight increase from $346 before the hike.

Ted Rossman, senior industry analyst at Credit Cards.com, said because interest rates vary from credit car to credit car, Americans will see a wide range of differences in their debt.

‘If the APR on your credit card rises to 18.61% by the end of 2022, it will cost you another $832 in interest charges over the lifetime of the loan, assuming you made minimum payments on the average $5,525 balance,’ Rossman told CNBC.

WHAT ABOUT MY AUTO LOANS AND STUDENT AND PERSONAL LOANS?

The interest needed to pay back on auto loans will see a modest increase.

As the average new car costs about $25,000, a new rate increase to 11.05 percent means that in the five years to pay off the car, consumers will have paid an additional $6,120.84 for the interest. It’s a notable rise from the $5,673.95 from the previous rate.

Although the interest will go up, auto dealers tend to be more sensitive to the competition, and through five-year financing, the monthly payment interest will likely go up by on $7 for most Americans.

Student loan payments will also see a boost as prior to the interest rate hike, an average loan of $28,400 would become $37,494 in ten years.

With the new interest rate at 6.55 percent, a graduate would have to pay a total of $38,784 in 10 years.

Even personal loan repayments will see a similar increase. A personal loan has an average 20.06 percent interest rate, according to Nerd Wallet, so to pay off a $10,000 loan in five years, consumers would have to spend $15,916.37.

After the hike, a borrower would need $16,167.95 to pay off that loan in five years.

HOW WILL MY SAVINGS ACCOUNT BE AFFECTED?

Savings, certificates of deposit and money market accounts don’t typically track the Fed’s changes.

Instead, banks tend to capitalize on a higher-rate environment to try to thicken their profits. They do so by imposing higher rates on borrowers, without necessarily offering any juicer rates to savers.

But while interest on loans continue soaring, savings accounts are expected to rise from an average 0.07 percent to 0.08 percent.

This means that a $5,000 savings account, with a monthly deposit of $200, will yield $7,404.88 within a year.

Greg McBride, chief financial analyst for Bankrate.com, urged Americans to seek out better accounts soo while they interest is going up.

‘If you have money sitting in a savings account earning 0.05 percent, moving that to a savings account paying 1 percent is an immediate twentyfold increase with further benefits still to come as interest rates rise,’ McBride told CNBC.

If you’re invested in mutual funds or exchange-traded funds that hold long-term bonds, they will become a riskier investment. Typically, existing long-term bonds lose value as newer bonds are issued at higher yields.

WILL THIS BRING DOWN THE COST OF LIVING?

In short, no. That’s one of the difficulties the Fed is facing. By raising rates it can cool demand in the economy by making borrowing costs more expensive, nudging consumers and businesses to curb spending, but it can’t do anything about supply shocks.

Economists thought March was the peak for consumer price hikes, but the rate spiked again in May, jumping 8.6 percent in the latest 12 months, and wholesale prices surged as well, almost entirely due to soaring costs for energy, especially gasoline.

US gasoline prices have topped $5.00 a gallon for the first time ever last week and are setting new records daily.

Meanwhile, the price of groceries have gone up significantly in the past year due to inflation, with the price of bacon up 15.3 percent, eggs up 32.2 percent and milk up nearly 16 percent.

Air travel prices have gone up 37.8 percent in the last year, and new car prices have also seen a jump of 12.6 percent.

Fed Chair Jerome Powell had indicated policymakers were poised to implement another half-point increase in the benchmark borrowing rate next month, aiming to douse the red-hot inflation without tipping the economy into recession and avoid a bout of 1970s-style stagflation.

President Joe Biden has fully endorsed the Fed’s battle against the steepest rise in prices in more than 40 years, as he watches inflation erode his popularity and deflect attention from other milestones, including a rapid recovery of the world’s largest economy and record job growth.

WHAT ABOUT MY RETIREMENT FUND?

Stocks plummeted in the days leading up to Wednesday’s rate hike as investors worried that sharply tighter monetary policy would drive the U.S economy into recession, if not this year then next.

In the past five days, the Dow Jones as been down more than 2,000 points, or 6.29 percent, but stocks saw a notable rally following the Federal Reserves’ announcement on Wednesday afternoon, shooting up more than 400 point by closing.

The S&P 100 and the Nasdaq also saw a small rally today, going up by 2.41 percent and 2.31 percent respectively.

What happens to stocks in coming weeks and months will depend a lot on whether investors believe the Fed will be successful in reining in inflation without cratering growth.

A good read on that may require another several months of inflation and other data, says State Street’s Marvin Loh.

‘I think that uncertainty out there with regard to higher energy costs, with regard to higher food costs, and a lot of the other undertones within the economy… creates an environment where you’re still going to have volatility.’

The volatility in the markets also extended to cryptocurrency investments as Bitcoin fell this morning to a new 18-month low as the recent tumble in crypto markets showed no sign of letting up.

Traders are nervously watching to see if it breaks below the $20,000 benchmark.

The world’s largest cryptocurrency fell as much as 7.8 percent to $20,289, its lowest since December 2020.

By 11.30 EST it had recovered to $21,221 but was still down. It has lost around 28 percent since Friday and more than half of its value this year. Since its record high of $69,000 in November, it has slumped about 70 percent.

COULD THE FED RAISING RATES IMPACT MY JOB?

By raising rates high enough to decisively dent inflation, the Fed will at the very least spark a period of slower economic growth. But investors are skeptical the Fed can achieve its aims without inducing a recession, often defined as two consecutive quarters of negative growth.

Fed policymakers think they may yet be able to avoid a big spike in firms laying off workers.

That’s because, the thinking goes, the unemployment rate is currently 3.6 percent, low by historical standards, and there are almost two job vacancies for every worker, so firms could conceivably cut back on job openings without cutting actual jobs.

But many do worry. ‘If our monetary policy brings about a slowdown of the economy, we’re all going to pay the price,’ Groundwork Collaborative executive director Lindsay Owens told activists gathered this week across the street from where Fed policymakers were meeting in Washington.

One policymaker, Fed Governor Christopher Waller, recently commented that if the Fed could keep the unemployment rate from rising above 4.25 percent in pursuit of getting inflation back to the central bank’s 2 percent goal, it would be a ‘masterful performance.’

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