The New York Stock Exchange ended its worst half since 1970 on Thursday, little reassured by persistently high US inflation, encouraging the Fed to continue raising interest rates.
According to the final results, the Dow Jones index fell 0.82% to 30,775.43 points. The tech-heavy Nasdaq fell 1.33% to 11,028.74 points. The S&P 500 lost 0.88% to 3,785.38 points.
“The Efforts of the Central Bank [Fed] The fight against inflation fueled growing fears of a recession, leading Wall Street into its worst half year since 1970,” noted Edward Moya, an analyst at Oanda.
He added that “the flurry of American data,” particularly inflation and fiscal spending released on Thursday, “have made it clear that the risks of a recession continue to mount.”
Year-to-date, the Star stock index is down 15.31% and the Nasdaq is down 29.51%, blaming it for the worst start to the year in its history. The S&P 500 settled into a “bear market” or bear market, falling 20.52%.
In the bond market, we saw a virtual inversion of the yield curve, with short-term (2-year) yields catching up with 10-year yields, which slipped below the 3% mark.
This flattening of the curve is commonly seen as heralding a recession.
Price inflation in the United States remained elevated at 6.3% yoy in May, according to the PCE index, a key inflation indicator favored by the US Federal Reserve (Fed).
During the month, inflation accelerated to 0.6% from a pace of 0.2% in April, the Commerce Department said, but was slightly below analysts’ forecasts, which had forecast 0.7%.
Another indicator signaling consumer concerns about rising prices is household spending, which rose just 0.2% from a 0.6% increase in April.
But adjusting for inflation, this spending, which drives the US economy, fell 0.4% in real terms in May, boding poor growth prospects for the second quarter.
“Inflation came out a little better than expected, but probably not enough to prevent the Federal Reserve from raising rates by 75 basis points at the next meeting,” Tom Cahill told Ventura Wealth Management’s AFP.
“At the same time, fiscal spending turned negative in real terms during the month, leading investors to feel the Fed could push the economy into recession,” the analyst added.
As earnings season approaches, strategists are beginning to trim their forecasts, particularly in the technology sector.
“In summary, markets are concerned about earnings forecast cuts, consumers starting to show signs of weakness and the Fed going to be very aggressive,” concluded Tom Cahill.
To top it off and reflecting the loss of risk appetite, cryptocurrencies performed “very poorly” with Bitcoin falling well below $20,000 to $18,960.
“There is still a lot of capital being invested in the cryptocurrency sector, which weighs on the morale of investors, especially young people,” the Ventura Wealth Management analyst pointed out.
Eight of the 11 S&P sectors ended at half-staff. The very defensive utility stocks were able to stay afloat (+1.10%).
Pharmacy chain Walgreens fell more than 6% despite better-than-expected quarterly results but posted a drop in sales.
Luxury home furnishings retailer RH fell 9.94% after warning that its results would be impacted by a “deteriorating” economic environment.
It dragged online furniture retail group Wayfair (-6.83%) and consumer electronics retailer Best Buy (-2.92%) into the red.
Costco, the semi-wholesale chain, was in demand (+2.01%) as consumers tightened their belts.