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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The S&P 500 Index and the Dow Jones both moved to record highs over the week, helped by some upside surprises to kick off earnings season. Shares in JPMorgan Chase and Wells Fargo rose on Friday after they reported smaller-than-feared declines in Q3 profits. A solid rise in NVIDIA shares helped growth stocks outperform value stocks and compensate for a decline in Google parent Alphabet. Tesla was also weak following a skeptical response to the company’s highly anticipated unveiling of its new “robotaxis” and “robovans.” The earnings focus arguably offset several disappointing economic reports over the week: headline and core (less food and energy) inflation rose in September by 0.2% and 0.3%, respectively, both a tick above expectations.