Wall Street closed a miserable september with a loss of 9.3%the worst monthly drop since March 2020.
The S&P 500 fell on Friday a 1.5% and stands at its lowest level in almost two years. The benchmark index has lost ground for six of the last seven weeks and posted its third straight quarter of losses. industry average dow jones lost 1.7% and the nasdaq fell 1.5 percent.
The main reason for the difficulties this year for the financial markets has been the fear of a possible recessionas interest rates soar in the hope of bringing down the high inflation sweeping the world.
The Federal Reserve has been at the forefront of the global campaign to curb economic growth and harm labor markets enough to reduce the inflation, but not so much as to cause a recession. More data came in Friday suggesting the Fed will keep its foot firmly in the economic slowdownraising the risk that it will go too far and cause a recession.
The Fed’s preferred measure of inflation showed that last month was worse than economists expected. This should keep the Fed on track to continue to raise rates and keep them high for a while, as it has repeatedly promised.
Vice Chair Lael Brainard was the latest Fed official to insist on Friday that types will not be withdrawn prematurely. This helped keep hopes dimmed on Wall Street for a “pivot” toward easier rates as the economy slows.
“Right now, it’s not about whether we’ll have a recession, but what kind of recession will it besaid Sean Sun, portfolio manager at Thornburg Investment Management.
Rising interest rates knock down one of the main levers that set stock prices. The other lever also appears to be under threat, as the slowing economy, high interest rates and other factors weigh on corporate profits.
Another report on Friday also offered a ray of hope. A measure of consumer sentiment showed that expectations of future inflation in United States they went down in September. This is crucial for the Fed, as expectations of higher inflation can create a self-reinforcing weakening cycle that makes inflation worse.
Treasury yields dipped a bit on Friday, releasing some of the pent-up pressure on markets. The 10-year Treasury yield fell to 3.75% from 3.79% on Thursday. The two-year yield, which more closely tracks expectations for Fed action, sank to 4.16% from 4.19%.
Nevertheless, a long list of other concerns continue to weigh on global markets, including rising tensions between much of Europe and Russia following the invasion of Ukraine. A controversial tax cut plan by the UK government also sent bond markets spinning recently on fears it could worsen inflation. Bond markets calmed down somewhat only after the Bank of England pledged in midweek to buy as much UK government bond as needed to push yields back down.
The amazing and rapid rise of the dollar against other currencies, meanwhile, the risk of creating so much tension that something cracks somewhere in world markets increases.
Stocks around the world were mixed after a report showed inflation in the 19 countries that use the European currency of the euro soared to a record and data from China said factory activity there weakened.
(With information from AP)