Tighter Money Policy: Market Drops

Paul Tarins, RICP®,WMCP®,CSRIC™

The Week on Wall Street

With the Fed in focus, the markets experienced wide price swings over the course of last week, as technology companies led the market lower.

The Dow Jones Industrial Average slipped 0.24%, while the Standard & Poor’s 500 declined 0.21%. The Nasdaq Composite index dropped 1.54% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, fell 1.99%.1,2,3

A Wild Week

After successive daily gains to begin the week, stocks staged a powerful relief rally in response to Wednesday’s Federal Open Market Committee (FOMC) announcement, aided by Fed Chair Powell’s comment that a 75-basis point hike was not under active consideration.

Stocks, however, dropped the following day as investors reassessed the implications of a tighter monetary policy. Also on Thursday, the yield on the 10-year Treasury Note closed above three percent. News that worker productivity fell 7.5% and labor costs rose 11.6% in the first quarter fanned inflation fears and added to investor unease. Despite a better-than-expected employment report, stocks closed out the week with another day of losses amid volatile trading.4

Fed Raises Rates

The May 2022 FOMC meeting resulted in an increase of 50 basis points in the federal funds rate, the largest rate increase since 2000. In a post-meeting press conference, Fed Chair Powell said additional 50 basis point hikes are likely, acknowledging that inflation was much too high and sending assurances that he was committed to price stability.

The Fed also announced that it would begin reducing its $9 trillion balance sheet by $95 billion a month, a step the markets had been anticipating.5

This Week: Key Economic Data

Wednesday: Consumer Price Index (CPI).Thursday: Producer Price Index (PPI). Jobless Claims.Friday: Consumer Sentiment.

Source: Econoday, May 6, 2022 - The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

This Week: Companies Reporting Earnings

Monday: Tyson Foods, Inc. (TSN).Tuesday: Occidental Corporation (OXY), Sysco Corporation (SYY).Wednesday: The Walt Disney Company (DIS), Rivian Automotive, Inc. (RIVN).Thursday: Affirm Holdings, Inc. (AFRM).

Source: Zacks, May 6, 2022 - Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.

1. https://www.wsj.com/market-data
2. https://www.wsj.com/market-data
3. https://quotes.wsj.com/index/XX/990300/historical-prices
4. https://www.cnbc.com/2022/05/05/labor-productivity-fell-7point5percent-in-the-first-quarter-the-fastest-rate-since-1947.html
5. https://www.cnbc.com/2022/05/04/fed-raises-rates-by-half-a-percentage-point-the-biggest-hike-in-two-decades-to-fight-inflation.html

Paul Tarins is an investment adviser representative of and offers investment and advisory services through Portfolio Medics, a registered investment adviser. Nothing contained herein should be construed as a solicitation for investment advisory services. Sovereign Retirement Solutions and Portfolio Medics are not affiliated.