Wall Street, which was closed Monday in observance of Juneteenth, is coming off its worst week since March 2020. The S&P 500 sank into a bear market, defined as a 20 percent drop from a recent high, and gave up 5.8 percent over the five-day span as investors digested a three-quarters of a percentage point increase from Federal Reserve’s benchmark interest rate, as well as mounting evidence that consumers are cutting back and growth is slowing amid the highest inflation in 40 years.
“The holiday-shortened week looks to start on the upside as oil prices and some other key industrial commodities have started to pull back, adding to the view that the Fed’s action is starting to work to rein in inflation,” Ivan Feinseth, chief investment officer at Tigress Financial Partners, said in commentary Tuesday.
Investors are trying to adjust to the tightening environment, which has largely wiped out the gains that stocks made after the sharp downturn at the pandemic’s onset. Later this week, Fed Chair Jerome H. Powell will testify before Congress regarding the recent interest rate hike — the central bank’s biggest since 1994 — and his views of the economy.
“We now see recession risk as higher and more front-loaded,” Goldman Sachs chief economist cautioned in commentary Tuesday, adding that the bank is “increasingly concerned” that the Federal Reserve will “feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further.”
The national average for a gallon of gas was $4.96 Tuesday according to data tracked by AAA, down slightly from recent highs. But in some parts of the country, the average remains above $6 per gallon.
President Biden is preparing for a trip to Saudi Arabia next month, where he is expected to ask the oil-rich nation for help in bringing down pressure in energy markets. Brent crude, the international oil benchmark, was trading above $115 per barrel Tuesday. West Texas Intermediate crude, the U.S. oil benchmark, was trading around $111 per barrel.