The S&P 500 recorded a rare and grim milestone this week
- Recession fears topped the S&P 500 a day after the Fed meeting, reversing the gains seen mid-week.
- The S&P 500 is up just 43.5% on all trading days in 2022, a grim marker, according to Bespoke Investment Group.
- Meanwhile, he said the Fed was facing a “policy error” in focusing on headline inflation influenced by high gasoline prices.
The lackluster performance of U.S. stocks this year deteriorated this week as a post-Fed rally crumbled and investors cemented the S&P 500 to one of its weakest mid-year performance since decades, all unfolding with the accumulation of bad economic data.
That’s the conclusion of Bespoke Investment Group in a note released Thursday on the “one step forward, two step back market” investors are experiencing this year. The S&P 500 sank deeper into a
with its daily loss of 3.3% one day after the
announced that it would raise interest rates by 75 basis points. None of the index’s 11 sectors rose and the energy group posted losses, falling almost 6%.
Thursday’s drop left the S&P 500 only 43.5% higher on all trading days in 2022.
“While that may not seem so extreme, in the post-World War II period, there were only seven other years where the percentage of upside days in the first half were lower,” the company said. independent investment.
The only two years where the percentage was below 40% in the first half were 1962 and 1970.
The negative milestone comes as investors flee so-called risky assets as the Fed hikes interest rates in a bid to tame inflation. Inflation in the world’s largest economy hit 8.6% in May, a 41-year high, preceded by a nearly 4% rise in energy prices.
Stocks rose on Wednesday after Fed Chairman Jerome Powell said the magnitude of his latest interest rate hike – 75 basis points – is unlikely to be common this cycle as the Fed continues to fight inflation. The Federal Open Market Committee has forecast its federal funds rate to be 3.4% by the end of the year. It is currently in a range of 1.5% to 1.75%.
But the next day, investors sent stocks tumbling amid fears the rapid pace of steep rate hikes could send the economy into a tailspin.
“To make matters worse, the economic data this morning was very weak as Housing Starts, Building Permits, Philadelphia Fed, Initial Jobless Claims and Continuing Jobless Claims were all weaker than previous economic forecast,” Bespoke said.
He noted that housing starts fell 14.4% in May, as the Commerce Department report came a day after the Fed lowered its economic growth forecast and raised its unemployment rate forecast. Monetary policymakers now expect gross domestic product in 2022 to grow 1.7%, down from a previous forecast of 2.8%.
“Given all the weakness, it seems unbelievable that all of this has been accompanied by the biggest rate hike in nearly 30 years and promises of more to come at future meetings,” the company said. “Nobody said getting out of COVID and all the stimulus programs would be easy, but they didn’t have 2022 in mind either.”
In a separate note, Bespoke said Powell had indicated the central bank would shift from focusing on underlying inflation to focusing on consumer inflation expectations and the headline inflation rate. Quantitatively, both of these numbers are driven largely by gas prices at the pump, the company said.
Gas prices topped $5 a gallon on average in the United States for the first time, AAA said this week.
“Obviously the only way the FOMC can change gasoline prices is to suppress broader economic activity, and that’s the presser’s message: that they will continue to rise aggressively until until headline inflation (petrol prices) starts to come down,” Bespoke said. said.
“It sets the stage for a policy error and it’s consistent with the summary of economic projections which aggregates the FOMC’s economic forecasts,” he said.