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Thursday, June 30, 2022

Stocks stem losses but remain on track for worst week since March 2020

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Investors looking for reprieve after a brutal turn of losses were greeted with some relief Friday, but Wall Street was still headed for its worst week since the chaotic early days of the coronavirus pandemic as the Federal Reserve’s aggressive moves to tame inflation β€” and the danger of sparking a recession β€” began to settle in.

The Dow Jones industrial average lost 88 points or 0.3 percent in midday trading, a day after the blue-chip index dropped below 30,000 for the first time since January 2021. The S&P 500 was virtually unchanged, while the tech-heavy Nasdaq climbed 107 points or 1 percent.

Investors are still grappling with the Fed’s momentous decision to raise interest rates by three-quarters of a percentage point. The move has far-reaching consequences for consumers, because it makes it more expensive to borrow money and carry a credit card balance. New data released Wednesday also pointed to a bumpier road ahead, complete with higher unemployment, slower economic growth and record-high prices that will take longer to come back down.

Recession fears grow as Dow closes below 30,000 and mortgage rates spike

Americans brave enough to glance at their 401(k)s or other investment accounts probably met with some ugly math. Portfolios spanning nearly every sector have suffered losses, and color coded grids showing the wins and losses of stocks flashed a solid wall of red. The S&P 500, a key benchmark for measuring financial performance over time, has lost nearly a quarter of its value this year.

The broad index is headed for a 6 percent decline for the week, its steepest loss since the outset of the public health crisis in March 2020.

But it’s not just investor sentiment that has turned sour. Higher interest rates are designed to strong-arm American consumers to spend less of their money, cooling demand for products and services. While Fed Chair Jerome H. Powell has defended the decision to aggressively raise interest rates to contain inflation, some experts worry the strategy could amount to an overreaction and yank the economy into a recession later this year or in 2023. More rate hikes are expected in the months ahead, but they may come in smaller increments.

Richard Saperstein, chief investment officer of Treasury Partners, said the market is reacting to the uncertainty over the Fed’s efforts to tame inflation. But he said an additional concern remains the unpredictable events tied to the ongoing war in Ukraine which the market has not fully considered.

As Wall Street whipsaws, gas prices continue to spike while inflation has yet to peak, according to the latest data that may have surprised policymakers hoping for cooling prices. But the economy has added several million jobs this year and consumer spending remains robust. The conflicting signals present a puzzle to analysts and political leader and highlight the uncertainty over the future of the economy.

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