Stocks fell Friday, ending one of Wall Street’s worst weeks of the year. But a procession of prominent investors and business executives revealed they believed the worst was yet to come for the economy and financial markets.
After hitting lows in June, the S&P 500 rose more than 17% in mid-August before losing momentum again.This week’s sell leaves the index intact After dropping 0.7% on Friday, it hit 5.6% from its low in June, taking a weekly loss of nearly 5%. The market has only fallen 5% a week three times this year.
But even after this week’s plunge, some of the world’s most powerful trading companies, which deploy trillions of dollars on behalf of pension funds, governments and other investors, warned there was more pain ahead. I’m here.
“If you asked me a year ago, ‘What is the worst-case scenario for financial markets? says Nicolai Tangen. The fund manages the money generated by Norway’s large oil and gas sales, and worldwide he has invested $1.4 trillion.
Business leaders, policy makers, and ordinary Americans are all skeptical of the end of the decade of lowest interest rates that helped propel the economy after the 2008 financial crisis and the less familiar, once-in-a-generation interest rates. I am working on a migration. An explosion of inflation. A number of challenges, including tight supply chains, the war in Ukraine and a new energy crisis, are raising a level of uncertainty that some investors say they haven’t experienced in decades.
The underlying strength of the U.S. economy provides some cushion, but a strong labor market and rising wages are pushing up prices for goods and services even further, so the Federal Reserve is pushing things forward. There are concerns that the drugs needed to fix the problem could push the United States into a deep recession.
Friday’s decline came as shares of logistics giant FedEx plunged more than 21% after warning that profits were being hit by weakness in Asia and Europe. FedEx said it would scale back some services, close locations and freeze hiring. It’s the latest in a string of companies to raise concerns and undermine investor confidence.
FedEx is considered an economic vanguard as its parcel shipping business reflects both business and consumer demand. CEO of the company, Raj Subramaniam, said: CNBC On Thursday, it predicted a “global recession.”
General Electric’s chief financial officer, Carolina Dyvek Happe, also warned of the challenges at Thursday’s meeting, noting that supply chain issues remain “challenging” and “compromising our ability to serve our customers.” I lamented. The company’s shares fell nearly 4% on Friday.
The weekend drop follows the S&P 500’s worst one-day drop since June 2020, dropping 4.3% on Tuesday. This came after the widely watched consumer price index dashed hopes that inflation had started to ease. The report reignited fears that it could push the US into recession as the Federal Reserve hikes interest rates to combat rising prices.
Economic concerns were also evident in other parts of the financial markets. Corporate debt prices fell and oil prices fell for his third consecutive week.
Tangen, of Norway’s Sovereign Wealth Fund, said he didn’t think there was an investment sector anywhere in the world that would be profitable in the near future. “It’s really depressing,” he said.
The grim mood is in stark contrast to the ferocious recovery from the pandemic’s low point and the stock market rally that pushed the S&P 500 to new highs in early January. Investors and policy makers underestimated the potential for inflation to get out of hand with rising energy prices after Russia’s invasion of Ukraine.
“What we’re facing is pretty embedded inflation expectations,” said Seth Bernstein, president and CEO of Alliance Bernstein, a fund manager with more than $600 billion in assets. Stated. The only way to “break” them, he said, is a recession.
Investors have adjusted their forecasts this week on how much the Federal Reserve will need to raise rates and how long the central bank will keep rates high, expecting more damage to businesses, lower stock prices and higher unemployment. did.
The Federal Reserve (Fed) has already raised interest rates from near zero in March to a range of 2.25% to 2.5%. The central bank is likely to raise borrowing costs again at next week’s meeting and will also release forecasts on the outlook for growth, inflation and interest rates.
Market-based interest rate forecasts show traders expecting a three-quarter percentage point rise next week. It’s a major move that hasn’t been made since 1984, and could cause financial markets to fall further.
Overall, market prices will peak next year at a rate of 4.25% to 4.5%, 2% above current levels.
The Fed isn’t the only one trying to raise interest rates to combat inflation. On Thursday, the World Bank said, in addition to warnings of a recession, the combined effects of simultaneous rate hikes by central banks around the world could plunge the global economy into recession as early as next year.
Among the largest US banks, forecasts are split. Economists at Wells Fargo and Citigroup expect a recession. Goldman Sachs CEO David Solomon said on Friday: Financial markets are “in a lower, longer, more volatile period.”
JPMorgan Chase and Morgan Stanley continue to forecast a soft landing where the Fed can cut inflation without going too far and triggering a recession.
Dan Ivascyn, chief investment officer at Pimco, a fixed income investment firm with about $1.8 trillion under management, said Tuesday’s release of inflation data showed just how widespread inflationary pressures were across the U.S. economy. I am a little worried,” he said.
“Investors can expect significant market volatility towards the end of the year,” he said. “We believe 2023 is still filled with many uncertainties.”