This year's dismal performance in US equities worsened this week as a post-Fed rally fizzled and investors solidified the S&P 500 to one of itsshabbiest mid-year showings in decades.
The one-step forward and two-step backward market is what investors are experiencing this year, according to a note published Thursday. The S&P 500 lost 3.3% on the day after the Fed raised interest rates. The energy group was the only one of the 11 sectors to move higher.
The S&P 500 fell on Thursday, leaving it higher by less than half of all trading days in the next four years.
The percentage of up days in the first half of the year has been lower in seven of the last eight years.
In 1962, and 1970, the percentage was less than 40% in the first half of the year.
As the Fed ramps up interest rates, investors are fleeing so-called risk assets. Inflation in the world's largest economy rose to 8.6% in May, a 41-year high, due to a 4% rise in energy prices.
The Fed Chair said the size of its latest interest rate hike shouldn't be common during this cycle as the Fed battles inflation. The fed funds rate will be 3.4% by the end of the year. There is a range of 1.5% to 1.75% at the moment.
On the next day, investors sent the stock market tumbling, fearing that the economy will fall into a recession.
Housing Starts, Building Permits, Philly Fed, Initial Jobless claims, and Continuing Jobless claims all came in weaker than expected, making matters worse.
The Commerce Department's report on housing starts in May was released a day after the Fed lowered its economic growth forecasts. The GDP is expected to grow by 1.7% in 2022, down from the previous forecast.
It seems unbelievable that it has all come with the largest rate hike in nearly 30 years and promises of more to come in upcoming meetings. No one said coming out of COVID would be easy, but they didn't have a plan for the future.
It's a policy error.
The central bank will shift from focusing on core inflation to emphasizing consumer inflation expectations and the rate of headline inflation according to a report. The firm said that both of those figures are driven by gasoline prices.
The average price of gas in the US has reached $5 a gallon for the first time in history.
"It's obvious that the only way to change gas prices is to suppress economic activity broadly, and that is the message from the presser: that they will continue hiking aggressively until headline inflation starts to drop."
It said that this set the stage for a policy error and that it was consistent with the Summary of Economic Projections.
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