Image Source: Business 2 Community
Following significant losses in the Global stock markets, US and Europe, Asian stocks sank on Friday as concerns about the economy grew following a series of rate hikes worldwide. The United Kingdom and Switzerland boosted interest rates on Thursday, a day after the Federal Reserve of the United States announced the highest rate hike since 1994.
Policymakers are hiking interest rates to decrease demand and alleviate some of the pressures driving up consumer prices. However, investors are concerned that the actions will cause a lasting slump in the global economy. Before the US rate hike this week, markets were already in precarious terrain, with the S&P 500 down more than 20% from its January peak.
The Nikkei in Japan was down 1.6 percent on Friday, while Australia’s main stock market index was down more than 2%. That occurred following a sell-off in the US on Thursday, with the S&P 500 dropping 3.2 percent and the tech-heavy Nasdaq dropping more than 4%. For the first time since January 2021, the Dow Jones Industrial Average fell more than 2.4 percent, falling below 30,000 points.
Few businesses were spared, and corporations that rely on discretionary spending, such as Nike and airlines, were among the most brutal hit. Energy businesses, which would potentially face a decline in demand if the economy slowed, were also hit hard.
Due to increased costs, Tesla’s stock dropped 8.5 percent after the company announced price hikes. In addition, the autopilot features of the electric vehicle are also being scrutinized by US road safety regulators.
Spotify also dropped 7% a day after the streaming behemoth announced it was slowing recruiting due to economic uncertainty, becoming the second major internet business to do so.
The state of the stock market and the economy in the United States
The Federal Reserve raised its main short-term interest rate by three times its average on Wednesday, marking the largest increase since 1994. It may consider another rate hike at its July meeting, but Fed Chair Jerome Powell has said that increases of three-quarters of a percentage point are unusual.
The Fed has only recently begun to allow some of the trillions of dollars in bonds it bought during the pandemic to fall off its balance sheet. This should put upward pressure on longer-term interest rates, and it’s another way central banks are pulling supports that had previously been propped beneath markets to sustain the economy.
Even though the labor market is strong, the Fed’s actions have emerged as some disconcerting signals about the economy. For example, the most recent data on Friday showed the country’s industrial production was lower than predicted last month. Other dismal statistics, such as declining retail spending and sour consumer mood, have fueled fears that the Fed’s measures may be overly forceful.
Powell will speak before Congress on monetary policy next week, and anything he says will undoubtedly influence trading. The testimony is set to take place on Wednesday and Thursday, which might result in even more wild swings on Wall Street.
The Nasdaq led the market on Friday thanks to gains in technology sectors. Amazon increased by 2.5 percent, while Nvidia increased by 1.8 percent.
Other stocks, which had been knocked particularly hard on Thursday due to fears of a future recession and inflation overwhelming consumers, have also recovered. Norwegian Cruise Line and American Airlines Group both increased by 10.1 percent and 6.4 percent, respectively. Despite this, both were down more than 12% for the week.
Smaller company stocks, which tend to move more in lockstep with forecasts for the strength of the US economy, also outperformed the market. The Russell 2000 index of smaller companies gained 15,86 points, or 1%, to 1,665.69. However, it was still down 7.5 percent for the week, significantly more than the entire market.
The United States stock exchanges will be closed on Monday in celebration of the Juneteenth holiday.
Opinions expressed by California Gazette contributors are their own.
