Wall Street’s main indexes are set for their first annual drop after three straight years of gains, dragged lower by the Fed’s fastest pace of interest rate hikes since the 1980s as it sought to stamp out decades-high inflation.
With investors flocking to safer assets such as the U.S. dollar and avoiding riskier bets, the benchmark S&P 500 and tech-heavy Nasdaq have slumped 19% and 33%, respectively, this year.
Both indexes are on course for their biggest yearly decline since the 2008 financial crisis.
Focus has now shifted to 2023 and the outlook for corporate earnings as investors grow increasingly concerned about the likelihood of an economic downturn from sharp rate hikes.
“The most important take of the year is: the era of easy money ended, and ended for good. It means that the financial markets won’t look like anything we knew since the subprime crisis,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“Given that there is still plenty of cheap central bank liquidity waiting to be pulled back, the situation may not get better before it gets worse in the first quarters of next year. Recession, inflation, stagflation will likely dominate headlines next year.”
Wall Street’s main indexes closed higher on Thursday after unemployment data signaled the Fed’s policy tightening was starting to take a toll on the U.S. labor market.
Still, signs of resilience in the American economy have fueled concerns that interest rates could stay higher for longer though easing inflationary pressures have kept alive hopes that the Fed could dial down the size of its rate hikes.
Most rate-sensitive technology and growth stocks such as Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) Inc and Meta Platforms Inc (NASDAQ:META) fell between 0.4% and 0.6% in premarket trade on Friday, as U.S. Treasury yields rose.
Money market participants see 69% odds of a 25-basis-point hike in the Fed’s upcoming February meeting, with rates expected to peak at 4.96% by the middle of next year. [FEDWATCH]
At 6:23 a.m. ET, Dow e-minis were down 98 points, or 0.29%, S&P 500 e-minis were down 13 points, or 0.34%, and Nasdaq 100 e-minis were down 42.75 points, or 0.39%.
Source: Economy - investing.com
