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Hawkish Fed sends stocks & bonds lower
Global equities recorded a second week of heavy losses after the Fed revealed that they expected official short-term interest rates to continue going sharply higher over the next several months. The Dow Jones Industrial Average fell to new intraday lows since late 2020, while the S&P 500 Index and Nasdaq Composite managed to stay slightly above their bottoms in mid-June 2022. The VIX index, so-called fear gauge, rose sharply at the end of the week. The Nasdaq Composite Index underperformed for the second consecutive week and briefly fell to a level more than one-third below its January record high.
The two-year U.S. Treasury note yield rose above 4.10%—its highest level since October 2007—and the 10-year U.S. Treasury note yield jumped briefly to 3.77%—its highest mark since November 2008. The STOXX Europe 600 Index ended the week down 4.37%, dropping to the lowest levels in more than a year. Yields on German 10-year government bonds rose to fresh decade highs while UK gilt yields jumped sharply on the prospect of escalating public debt and a sharp increase in interest rates after the government slashed taxes by the most since 1972 to support the economy. The UK pound fell to USD 1.09—a 37-year low. The RBA, SNB and BoE lifted interest rates while Eurozone business activity contracted for a third consecutive month in September as the economic downturn deepened. Cryptocurrencies tumbled.
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Major US stock indexes finished the holiday-shortened week mixed. Smaller-cap indexes outperformed, with the Russell 2000 Index posting gains, while the Dow Jones, S&P 500 and Nasdaq Composite indexes all closed the week lower. The Tech sector was a notable decliner during the week, due in part to news that the U.S. government would add new restrictions on exports of chips to China in a further escalation of the ongoing trade war between the world’s two largest economies. Hawkish comments from Fed Chair Jerome Powell appeared to add to the negative sentiment in the latter half of the week. On the macro side, US consumer spending rose 1.4% yoy in March, the highest monthly increase in over two years, as consumers rushed to buy cars ahead of the Trump administration’s 25% tariff on automobiles.