Stocks stem losses but still close worst week since March 2020

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Investors got some relief on Friday after a sharp turn in losses, but Wall Street still closed its worst week since the chaotic early days of the coronavirus pandemic, as the Federal Reserve’s aggressive push to tame inflation – and the danger of triggering a recession – has begun to set in.

The Dow Jones Industrial fell 38 points, or 0.1%, a day after the blue chip index fell below 30,000 for the first time since January 2021. The S&P 500 rose 8 points or 0.2%, while the tech-heavy Nasdaq climbed 152 points. or 1.4 percent.

Investors are still grappling with the Fed’s momentous decision to raise interest rates by three-quarters of a percentage point. This decision has far-reaching consequences for consumers, as it makes borrowing money and credit card balances more expensive. New data released on Wednesday also pointed to a bumpier road, with higher unemployment, slower economic growth and record prices that will take longer to come back down.

Recession fears grow as Dow closes below 30,000 and mortgage rates soar

Mortgages, for example, have become much more expensive this week: a 30-year fixed-rate mortgage hit 5.78% this week, according to Freddie Mac. Just a week ago it was 5.23, marking the biggest one-week jump since 1987.

“The housing market is not crashing, but it is experiencing a hangover as it descends from an unsustainable high,” Redfin deputy chief economist Taylor Marr said in a blog post on Thursday. . “The demand for housing has already cooled considerably to the point that the industry has started to face layoffs. This week’s rate hikes will further stretch homebuyers’ budgets to the point that many more could be unaffordable,” he said.

Rates have almost doubled in recent months: a 30-year fixed rate loan, the most popular option, was close to 3% in November. The difference would add about $700 to the monthly mortgage on a $500,000 home, according to a Washington Post analysis. Over the life of the loan, the rate increase adds up to $256,000 in additional payments, more than half the price of the home.

The median home price in the United States was $391,200, according to the latest data from the National Association of Realtors, released last month.

“While many home sellers are already lowering prices, more homeowners are likely to decide to stay put now that the mortgage rate for a new home is significantly higher than what they are currently experiencing,” said Marr of Redfin. .

Americans brave enough to take a look at their 401(k) or other investment accounts have likely been faced with some ugly calculations. Portfolios spanning nearly every sector suffered declines, and color-coded grids showing stock gains and losses flashed a solid wall of red. The S&P 500, a key benchmark for measuring financial performance over time, has lost nearly a quarter of its value this year.

The broad index fell 5.8% for the week, its biggest loss since the public health crisis began in March 2020. The Nasdaq and Dow Jones both fell 5% for the week, highlighting the pessimism seeping into Wall Street.

But it’s not just investor sentiment that has deteriorated. Higher interest rates are designed to induce US consumers to spend less money, which dampens demand for products and services. While Fed Chairman Jerome H. Powell has defended the decision to aggressively raise interest rates to contain inflation, some experts worry the strategy could result in overreaction and plunge the economy into a recession later this year or in 2023. Further rate hikes are expected in the coming months, but they may come in smaller increments.

Investors will also look to corporate earnings for the next few quarters to gauge how executives are interpreting a potential economic downtown. Many U.S. management teams foresee hurdles ahead as rising costs and uncertainty around inflation slow demand for their products.

“These latest signals build on reduced projections from economists around the world as growth expectations have been tempered by a cocktail of persistent supply chain shortages, high inflation and heightened geopolitical uncertainty,” said Nicole Tanenbaum, Partner and Chief Investment Strategist. Financial management of ladies.

Richard Saperstein, chief investment officer of Treasury Partners, said the market was reacting to uncertainty surrounding the Fed’s efforts to control inflation. But he said an additional concern remains the unpredictable events related to the ongoing war in Ukraine that the market has not fully priced in.

As Wall Street goes wild, gasoline prices continue to climb as inflation has yet to peak, according to the latest data that may have surprised policymakers hoping for lower prices. But the economy has added several million jobs this year and consumer spending remains robust. The mixed signals present a conundrum to analysts and political leaders and highlight uncertainty about the future of the economy.

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