S&P 500 Logs Worst Weekly Loss Since March 2020, Oil Drops 6%

Barry Adams
17 Jun, 2022
New York City

Stocks closed higher in volatile trading but ended down after a tumultuous week. 

Investors cheered on Wednesday after the Federal Reserve took strong action and lifted rates more than advertised but a day after reality of higher rates began to set in. 

The Fed's 75-basis-point rate hike is the most aggressive step since 1994 but the Fed is still lagging behind by a wide margin when inflation is running near 9% and showing no sign of ebbing. 

The Fed is also powerless in changing the trajectory of energy prices and in eliminating pandemic related supply chain disruptions. 

In addition, most companies are raising prices more than cost increases fueling inflation higher. 

In other words, the Fed's rate action may not impact inflation rooted in energy prices by much but most likely will slowdown the economy and increase unemployment rate. 

The Fed can only impact demand and hope that lower demand will trend inflation downward but will not be able to root it out completely. 

This outcome is not what investors were looking for when they were cheering for the larger and faster rate hikes. 

The Fed is in a tough spot because fighting elevated inflation while keeping the economic engine humming is a delicate balance with many factors outside its control. 

Skeptical investors are opting that the Fed may pursue faster rate hikes in future but that will certainly slow the economy faster too turning the Fed's expectation of 1.7% economic growth in 2022 largely out of reach. 

Historically, the Fed has never managed to tame inflation above 6% without dipping the economy into a recession, meaning a profit recession and lower stock valuations.  

Only time will tell if we will end up in a recession, soft landing, or just a slow down, but one thing is sure, rising rates almost always lower stock valuations. 

At least today, tech stocks were in favor after a week of selling and bargain hunters were ready to add more stocks. 

The yield on 10-year notes declined a fraction to 3.23% but mortgage rates remained elevated, inching closer to 6%.  

The 30-year fixed-rate mortgage rates jumped to 5.78% for the week ending June 16, an increase of more than half a percentage point and the largest increase on a weekly basis since 1987, according to the survey conducted by Freddie Mac. 

Mortgage rates have jumped little more than two-and-a-half percentage points from the beginning of the year and jumped from 2.93% a year ago. 

Oil prices dropped to a four-week low on the growing prospects of economic recession and the U.S. dollar rose against a basket of currencies. 

Russia's oil exports are going to increase in 2022 despite Western sanctions and European blockade, according to Tass news agency quoting  deputy energy minister Pavel Sorokin. 

In addition, oil from Venezuela is expected to reach refineries in Italy and Spain as early as next month, adding more oil supplies in the international markets. 

Futures of crude oil declined 6.5% to $109.95 a barrel and natural gas fell 6.1% to $7.00 a unit. 

The S&P 500 declined 0.6% to 3,674.98 and the Nasdaq Composite rose 1.4% to 10,798.90. 

For the week, the S&P 500 fell 5.8% and registered its worst weekly loss since March 2020. 

The Nasdaq Composite fell 4.8% in the week.

Tech stocks led the rebound in trading and  Apple, Tesla, Amazon, Meta, Alphabet, and Microsoft rose between 1.0% and 1.5%. 

Home Depot, Intel, JPMorgan, and 3M dropped to their new 52-week lows today.  

Kroger Co declined 7.7% to $46.20 after the food retailer said sales in the first quarter ending May 21 rose 4.1% to $44.6 billion from a year ago.

Earnings increased to $664 million or 90 cents a share from $140 million or 18 cents in the same period.  

The retailer guided comparable sales in the fiscal 2022 to increase between 2.5% and 3.5% and said in the quarter repurchased $665 million of its shares. 

Kroger stock fell after the retailer said higher inflation is forcing more customers to select store branded items.