Weekly Market Commentary: Fed Rate Hike Triggers Market Dip

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 Tumble

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

This Week: 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.

This Week: 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.

1. https://www.wsj.com/market-data
2. https://www.wsj.com/market-data
3. https://quotes.wsj.com/index/XX/990300/historical-prices
4. https://www.cnbc.com/2022/06/15/stock-market-futures-open-to-close-news.html
5. https://www.wsj.com/articles/fed-raises-rates-by-0-75-percentage-point-largest-increase-since-1994-11655316170
6. https://www.wsj.com/articles/fed-raises-rates-by-0-75-percentage-point-largest-increase-since-1994-11655316170

This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.