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Topline

The stock market moved slightly higher on Friday as it attempts to rebound from a brutal selloff, with the benchmark S&P 500 on track for its worst week since March 2020 as investors brace for a looming recession.

Key Facts

Stocks rallied somewhat following several sharp selloffs this earlier week: The Dow Jones Industrial Average rose 0.2%, nearly 100 points, while the S&P 500 gained 0.6% and the tech-heavy Nasdaq Composite 1.3%.

Markets have been roiled by rising recession fears this week, however, with the S&P 500 falling roughly 6%—on pace for its worst weekly performance since March 2020, when pandemic lockdowns last sent the U.S. economy into a recession.

After especially steep losses on Thursday, the Dow fell below the 30,000 mark and hit its lowest level so far in 2022, while the S&P and Nasdaq remain stuck in bear market territory.

Investors are still digesting the latest rate hike from the Federal Reserve, which raised interest rates by 75 basis points on Wednesday—the biggest increase in 28 years, with Fed Chair Powell hinting at a similarly large rate hike for the central bank’s next policy meeting in July.

Markets are increasingly concerned that the Fed won’t be able to achieve a soft landing and will instead plunge the economy into a recession as it aggressively raises interest rates to combat 41-year high inflation.

“Our worst fears around the Fed have been confirmed: They fell way behind the curve and are now playing a dangerous game of catch up,” according to analysts at Bank of America, who predict a 40% chance of a recession next year.

Crucial Quote:

“The risks of a recession are rising, while achieving a soft landing for the U.S. economy appears increasingly challenging,” according to Mark Haefele, chief investment officer for Global Wealth Management at UBS. “Against this backdrop, we now see less upside for stocks this year, with slowing economic growth weighing on profit growth and higher bond yields depressing valuations,” he adds.

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What To Watch For:

“Markets are now overestimating global inflation and monetary hawkishness – we think both are at/past their peaks, and the landscape will look a lot different within the next few months,” says Vital Knowledge founder Adam Crisafulli. “There’s a deafening amount of recession talk,” and while the S&P 500 won’t “zoom back to its highs anytime soon,” sentiment has “become too negative.”

Further Reading:

Dow Plunges 700 Points As Fed Rally Evaporates Amid Fears That A Recession Is ‘Inevitable’ (Forbes)

Dow Jumps 300 Points After Powell Says Fed Could Hike Rates By 75 Basis Points Again In July (Forbes)

Fed Authorizes Biggest Interest Rate Hike In 28 Years, As Experts Worry Its Fight Against Inflation Will Spark Recession (Forbes)

Mortgages Surge Past 6% And Hit Their Highest Level Since 2008: Housing Market Could ‘Torpedo’ U.S. Economy, Expert Warns (Forbes)

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