Markets Fade after Fed Raises Rates 0.5%

The Dow (-0.2%), NASDAQ (-1.5%), and S&P 500 (-0.2%) each fell for the week, and bonds continued their slide by dropping about 1% for the week as well.  Large cap value stocks actually gained 0.6% for the week, buoyed mostly by energy stocks.  The same theme continues, as inflation remains at a 40-year high, and US interest rates continue to climb as a direct result.  Last Wednesday, the Fed raised interest rates by 0.5%, and that was met with glee as the markets rocketed in the afternoon, because Chairman Powell said the Fed wouldn’t raise rates by 0.75% in June.  Then on Thursday, that euphoria disappeared, and the markets gave back all those gains and then some, ending the week in negative territory.  Meanwhile, the 10-year Treasury eclipsed 3%, reaching a high not seen since November 2018.

There was very little economic news last week, but there will be important economic reports this week, as two key measures of inflation will be reported.  We are also in the midst of corporate earnings season, and as a general rule, companies are exceeding their earnings projections, with some exceptions.  More recently, Amazon and Netflix reported earnings disappointments, and their stocks got punished.  Combined with the rising interest rates that adversely impact higher PE stocks that are typical of the NASDAQ, those disappointing earnings reports helped the NASDAQ fall deeper into its bear market correction.  Stay tuned as we prepare a more comprehensive economic report and outlook later this week.

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