• December 2, 2022

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Topline

Major indexes fell for a sixth straight day and closed at their lowest level in more than two years on Wednesday, after the Federal Reserve doubled down on its aggressive interest rate hiking campaign and acknowledged taming inflation may ultimately require a recession.

Key Facts

After closing at a nearly 27-month low on Tuesday, the tech-heavy Nasdaq ticked down another 9 points, or 0.1%, to 10,417 points on Wednesday, while the S&P 500 fell nearly 12 points, or 0.3%, to post its lowest close since November 2020.

Though positive earlier in the day, stocks struggled in late-day trading after Fed officials defended their aggressive policy moves in minutes from their latest meting, saying additional rate hikes would help prevent the “far greater economic pain” associated with high inflation and adding that the cost of taking too little action “likely” outweighs the cost of taking too much.

Stocks fell earlier in the week after the Bank of England highlighted its own monetary policy struggles, announcing it would take additional measures to prop up the United Kingdom’s recently chaotic bond market and saying dysfunction in the market posed a “material risk” to financial stability in the nation.

In a Tuesday note, LPL Financial’s Quincy Krosby said the growing global uncertainty has made markets more volatile as investors anxiously await the start of third-quarter earnings season later this week, which should provide more clarity into how companies are faring through the economic turmoil.

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Key Background

With prolonged inflation forcing central banks to hike interest rates aggressively this year, stocks have suffered immensely as a result. After surging 27% in 2021, the S&P has plummeted 25% this year, and the tech-heavy Nasdaq is down 34%. Morgan Stanley projects the S&P will ultimately hit a bear-market low of between 3,000 and 3,400 points—suggesting the index, which is already down 21.5% this year, could still plummet another 10% to 20%.

What To Watch For

Incoming data is sure to test the market this week. The Labor Department releases inflation data for September on Thursday. Economists expect consumer prices rose 8.1% on a yearly basis. Additionally, big banks are among the firms kicking off earnings season, with Charles Schwab and Goldman Sachs slated to report on Thursday, and JPMorgan and Wells Fargo on Friday.

Further Reading

Does The Fed Want You To Lose Your Job? It’s Complicated. (Forbes)

Fed Acknowledges Rate Hikes Will Fuel Unemployment—But Warns Inflation Could Cause ‘Far Greater Economic Pain’ (Forbes)

Strong Dollar Poses Looming Threat To Corporate Earnings—But These Stocks Avoid One Of The Biggest Risks (Forbes)

Nasdaq Hits 2-Year Low As JPMorgan Billionaire Warns It Could Take Months For Stock Market To Bottom (Forbes)

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