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US stocks were down on Monday as investors braced for another rate hike expected by the US Federal Reserve later this week.
On Friday, a stern warning from FedEx about rapidly deteriorating trends in the economy gave investors more worries. The S&P 500 fell 0.7%, while the Nasdaq lost almost 1%. The Dow lost nearly half a percent.
The S&P 500 fell 0.7% to 3,873.33. It is now down 18.7% since the start of the year. The Dow Jones Industrial Average fell 0.5% to 30,822.42 and the Nasdaq 0.9% to 11,448.40.
Manufacturers of household goods, which are generally considered less risky investments, held up better than the rest of the market. Campbell’s soup rose 1.3%.
Higher interest rates tend to weigh on equities, especially the more expensive tech sector.
Technology stocks within the S&P 500 are down more than 26% for the year, and communications companies are down more than 34%. These are the worst performing sectors in the benchmark index year to date.
The housing sector is also suffering from the rise in interest rates. Average long-term mortgage rates in the United States rose above 6% this week for the first time since the housing crash of 2008. Rising rates could make an already tight housing market even more expensive for buyers.
Reports this week from the government showed that the prices of just about everything except petrol continue to rise, the labor market is still hot and consumers continue to spend, giving ammunition to Fed officials who say the economy can tolerate more rate hikes. .
Markets are on edge with stubbornly high inflation and interest rate hikes being used to combat it. The fear is that the Fed and other central banks will overshoot their policy targets, triggering a recession. Most economists expect the Fed to raise its primary lending rate another three-quarters of a point when central bank leaders meet this week.
“The fact is, hawkish expectations based on ‘hot under the hood’ US inflation mean markets have good reason to brace for headwinds in a higher rate outlook (for longer); and arguably ‘higher for longer’ the USD (dollar) as well,” Mizuho Bank’s Vishnu Varathan said in a comment.
The S&P 500 fell 4.8% for the week, with much of the loss coming from a 4.3% rout on Tuesday following a surprisingly hot inflation report. All major indexes have now posted losses in four of the past five weeks.
Meanwhile, in Asia on Monday, Hong Kong’s Hang Seng fell 1.1% to 18,558.18 while the Shanghai Composite Index lost 0.6% to 3,106.57. Australia’s S&P/ASX 200 edged down 0.1% to 6,732.20. In Seoul, the Kospi fell 1.2% to 2,355.31. J
Japan’s central bank meets Wednesday and Thursday amid growing pressure to counter a sharp decline in the yen, which is trading near 145 to the dollar after sharp increases in the value of the greenback. This has increased costs for businesses and consumers, who must pay more for imports of oil, gas and other basic necessities.
However, the Bank of Japan has so far held firm by maintaining an ultra-low benchmark rate of minus 0.1% in hopes of boosting investment and spending.