The Dow Jones Industrial Average is on its longest weekly streak since 1923. Meanwhile, the S&P 500 announced that it has also reached the longest seven-straight week loss since 2001. The financial markets feel inflation’s bite as investors retreat from risky assets like stocks and bonds amid increasing inflation and a volatile market.
Dow ended last week dropping 3%. The eight-week loss according to FactSet data and LPL Financial. S&P dipped 20%, setting an all-time high since January!
Experts say that the current economic climate has been a significant driver of this trend, with high inflation rates and actions taken by The Federal Reserve to control prices in markets causing investors’ moods to turn grim.
Bespoke Investment Group reported that S&P briefly entered bear-market territory.
With price hikes in the market, analysts say that the Feds should increase interest rates to lessen demand and maintain the stability of prices. Feds officials have stated their intention to cool the economy to lower prices while disallowing recession to happen.
However, the plan was met with doubts as many believed that it would be impossible to execute the plan. Former New York Federal Reserve Bank president Bill Dudley also says so.
Feds likened their plans to the ‘soft-landing’ of 1994, where the central bank successfully countered the same problem. While the feds are confident that the 1994 handbook of the soft landing may guide them in policy creation, others are not so optimistic about the plan.
There were differences in the conditions between 1994 and 2022. Geopolitics is one. Back in 1994, the North American Free Trade Agreement (NAFTA) had just been adopted, and the Berlin Wall had just fallen. The events allowed imports to come and subsequently lowered the cost of goods and services. When compared to the conditions in 2022, the differences are obvious.
As Russia and Ukraine continued their dispute, many countries have imposed trade restrictions that could affect the supply chain for goods like gas. The Northern Trust’s Carl Tannenbaum remains confident, however as he believes there is still a chance of an execution soft landing by the authorities in the Federal Reserve.
According to Tannenbaum, “None of this is to suggest that a soft landing is impossible this time around. But the degree of difficulty is much higher than it was 28 years ago.”
Ryan Detrick from LPL Financial said that a big bounce-back rally should happen. He further stated that the stocks have been doing poorly recently, and this is due to the internal and external factors that caused prices to rise.
The global economy is in a state of flux, with emerging markets struggling and developed economies slowing down. US corporate executives are not immune from these trends, as more than half feel glum about their prospects for market growth.
Experts and analysts suggest that a recession is highly likely, but the government with the Federal Reserve is doing what it can to prevent this from happening.
Opinions expressed by US Insider contributors are their own.