last week, federal reserve After the 10th straight rate hike, the Fed decided not to raise rates and instead waited to assess how the economy had reacted to previous sharp rises in interest rates. Equity investors also took a moment to reflect this week, putting recent gains on hold until the outlook becomes clearer.
The S&P 500 Index posted its first weekly decline since early May, ending the index’s longest streak since 2021. The S&P 500 index is up about 13% this year, and has risen more than 20% since hitting lows last October, surpassing all-time highs.technical limit Beginning of a bull market, the term Wall Street uses to describe a period of investment fever. Despite Friday’s drop, this week’s losses shaved just 1.4% off the index’s gains so far.
Stocks of small businesses at risk of a US economic downturn fell further. The Russell 2000 index, which tracks these domestically focused companies, fell for days this week, dropping 2.9% for the week, its worst level since the banking sector turmoil in March.
The more cautious and subdued tone of last week’s trading reflected the message sent out by Fed officials: more rate hikes may be needed, further rising costs for consumers and businesses, but the decision Jobs and other indicators based on upcoming economic indicators on inflation. Fed Chairman Jerome H. Powell said in congressional testimony Thursday that “the data will tell us what to do” about future rate hikes.
In other words, both Fed policymakers and investors await more information to determine whether rates will continue to rise, which will determine how the stock market reacts.
“The market and the Fed are looking at the same data and thinking the same way,” said Paul Christopher, head of global investment strategy at Wells Fargo Institute of Investments. “They weren’t on the same page much this year.”
The Fed last week acknowledged that the economy had proven more resilient than expected to the central bank’s attempts to slow it down and, as a result, curb inflation. Investors appear to be acknowledging this week that a strong economy could justify raising rates. In recent months, investors have questioned the Fed’s determination to keep raising rates and boosting stock prices.
Investor bets on the Fed’s number of rate hikes this year are trickling up, with investors now expecting another quarter of a percentage point hike before the end of the year. That number is still lower than policymakers themselves expected to raise rates twice this year, but it is closer than ever. Until recently, investors thought the Fed might cut rates at the end of the year.
Some investors say the remaining disagreement stems from caution expressed by some Fed officials about the outlook. Atlanta Fed President Rafael Bostic has backed rate hikes so far. But this week, he said he expects interest rates to remain at current levels through the end of the year.
Lauren Goodwin, an economist at New York Life Investments, said the wait-and-see approach was justified because the markets and the Fed had “arrived at the same interpretation of the world.” What happens next will depend on how quickly inflation falls, he said.
Gina Smirek contributed to the report.