Stocks Nosedived On Fed and Looming Global Slowdown

Barry Adams
23 Sep, 2022
New York City

The sell-off on Wall Street intensified as investors grudgingly adjust to the new reality of higher interest rates and slowing economies around the world. 

Three back-to-back large-size rate hikes are still not effective in combating elevated inflation, forcing the central bank to continue lifting rates.

The Fed has revised rates higher five times over the last six months but those sharp increases are not denting the sky-high inflation so far.

Rates are blunt tools and have lagging effects on the economy, and investors are worried that the economy may dip into a recession before inflation begins to cool.

The S&P 500 index plunged 2.9% and the Nasdaq Composite index 2.7% and extended weekly loss to 5.8%. 

The S&P 500 index is set to close at a new 2022 low and the Nasdaq is flirting with the lows last seen on June 16. 

 

Stock Movers 

The sell-off on Wall Street was wide and deep and several popular stocks traded at multi-year lows. 

All eleven sectors declined and energy led with a plunge of 7%. 

Visa, Master Card, Salesforce.com, Nike and AMD dropped to the lows last seen in 2020, 

Walgreens Boots Alliance plunged to the low last seen in 2012, Intel traded near 2015 level, 3M at 2013 low and Warner Brothers Discovery at 2009 low. 

Among the widely held stocks, Apple, Amazon, Alibaba, Goldman Sachs, Exxon Mobil, Baker Hughes and Caterpillar dropped between 4% and 5%. 

Apple, Microsoft,  Meta, Alphabet and IBM dropped between 1.5% and 2%. 

 

Energy Prices Extend Weekly Losses

Crude oil declined $4.90 to $78.53 a barrel and natural gas fell 25 cents to $6.83 a thermal unit.

For the week, crude oil dropped 7.1% and natural gas plunged 12.2%. 

The yield on 2-year Treasury notes rose to 4.22%, 10-year Treasury notes rose to 3.69% and 30-year bonds edged up to 3.61%. 

 

Europe: Weekly Loss Between 3% and 6%

Markets in Europe plunged more than 2% as businesses are grappling with soaring energy costs, rising interest rates and weakening economy.

Moreover, the 2-decade high-dollar is also stoking fears of inflation.

The U.K. pound dropped to a new 4-decade low $1.11 after the government's mini-budget offered more tax breaks to businesses 

The yield on the U.K. 10-year government bond rose to 3.78% after the government released its mini-budget indicating a rising budget deficit ahead of the difficult winter ahead.

The government's budget deficit is likely to expand further in the current and the next quarter on the rising cost of energy imports and the government shouldering most of the price increase.

A separate survey indicated a deepening slowdown in the private business sector.

The S&P Global/CIPS flash Composite Purchasing Managers' Index declined to 48.4 from 49.6 in August.

The flash composite indicator of manufacturing and services for Germany declined to 45.9 from 46.9 in August.

The flash estimate for the French service sector increased to 53.0 from 51.2 in August.

Any reading above 50 indicates expansion and below 50 a contraction.

The euro also dropped to a new 2-decade low of 97 cents against the resurgent dollar.

The DAX index dropped 1.8% to 12,306.76, the CAC-40 index declined 2.2% to 5,789.25 and the FTSE 100 index eased 1.97% to 7,019.61.

The Swiss Market Index declined 1.2% to 10,176.05 following the declines in Europe and on the worries that more rate hikes are likely to follow the recent rate hike.

For the week, the FTSE 100 index declined 3.1%, the DAX index fell 3.4%, the CAC-40 dropped 4.8% and the SMI decreased 4.2%.  

The Russian index plunged nearly 13% in the week and Spain's benchmark index dropped 6% in the week.

 

Movers: Credit Suisse, EssilorLuxottica, SmithsGroup

EssilorLuxittica SA edged up 0.4% to 139.35 euros after the company launched a stock repurchase program to buy back up to 1.5 million of its shares between Sept 23, 2022 and March 31, 2023.

The program authorizes the company to buyback up to 10% of its share capital and not to exceed 200 euros a share price.

Smiths Group Plc closed up 1.1% to 1,486.0 pence after the engineering company posted mixed financial results.  

Revenue in the fiscal year 2022 ending in July increased to 2.57 billion pounds from 2.4 billion pounds a year ago.

After-tax net income in the period from continuing operations declined to 13 million pounds from 157 million pounds a year ago.

Credit Suisse Group fell 12.3% to 4.08 Swiss francs on the news that the company is looking to shore up its balance sheet and searching for equity investors.

 

Asian Markets Fell On Global Recession Worries

Asian markets dropped as well on the worries that rising rates around the world will spark a global recession and taming elevated inflation may take another two years

The Nikkei 225 index declined 0.6%, the Hang Seng index dropped 1.2%, the Shanghai Composite fell 0.6% and the Sensex index eased 1.7%.  

For the week, the Nikkei eased 2.6%, the Shanghai index declined 1.2%, the Sensex fell 1.3%, and the Hang Seng decreased 4.4%.