Stocks Fall After Hawkish FOMC Meeting
Equities fell last week after another Fed rate hike. Global equities (represented by the MSCI All Country World Index) were down -4.96%, and domestic stocks (represented by the S&P 500 Index) were down -4.63%.
The US Fed’s FOMC meeting concluded with the third consecutive 0.75% rate increase last week. The Fed Funds rate now sits at a range of 3.00% – 3.25%, and Fed officials project more hikes through the end of the year and to keep rates higher for longer. Central banks around the globe are dealing with the similar task of tackling high inflation as 9 other banks hiked interest rates last week as well.
The 10-year US Treasury yield has now risen for 8 straight weeks as it reached around 3.69% last Friday. The yield ended the previous week around 3.45% and came into the year around 1.51%.
Despite the stock market selloff, not all news was bad news last week. Weekly jobless claims rose slightly from the previous week to 213,000. The labor market continues to show its strength as unemployment claims were around 224,000 coming into 2022. S&P Global’s Flash US Manufacturing PMI report showed continued expansion with a slightly stronger reading than August.
While global and domestic equities are down over 20% year-to-date with rate hikes being a major headwind, stock market performance generally tends to be strong once interest rates peak as seen in the below graphic. Although more rate hikes are projected before year-end, easing inflationary data could change the pace of the Federal Reserve’s tightening.
PCE Price Index
This week the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, will be released. The last monthly reading of a 6.3% annual rate fell from the previous month’s 6.8%.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
S&P 500: The Standard & Poor’s 500 Composite Stock Price Index is a capitalization-weighted index of 500 stocks intended to be a representative sample of leading companies in leading industries within the U.S. economy. Stocks in the Index are chosen for market size, liquidity, and industry group representation.
Russell 2000: The Russell 2000® Index is a capitalization-weighted index designed to measure the performance of the 2,000 smallest publicly traded U.S. companies based on in market capitalization. The Index is a subset of the larger Russell 3000® Index.
MSCI All Country World Index: The MSCI ACWI captures large and mid-cap representation across 23 Developed Markets (DM) and 24 Emerging Markets
(EM) countries. With 2,937 constituents, the index covers approximately 85% of the global investable equity opportunity set.
GDP: Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
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