On global stock exchanges, major equity indices sharply fell last week as the latest indicators tempered investor expectations for an imminent reduction in interest rates, which in turn continued to raise bond yields, diverting some capital from equity to bond markets.
The Dow Jones index fell 2.2 percent last week, to 34,500 points. At the same time, the S&P 500 plummeted 2.1 percent, to 4,369 points, marking a loss for the third consecutive week, a situation not seen since February.
The technology Nasdaq, on the other hand, weakened by 2.6 percent, finishing trading on Friday at 13,290 points, also marking a decline for the third consecutive week, which is its longest weekly negative streak since last December.
– We have long been overdue for a correction in stock prices, and it is now clear that higher interest rates have become a catalyst for that – stated Michael Reynolds from the advisory firm Glenmede.
Stock prices on Wall Street have been under pressure since the beginning of August, with the S&P 500 sliding to its lowest level in the past month, due to data indicating stubborn inflation, as well as strong economic activity, suggesting that the U.S. economy is not suffering the consequences of tightening monetary policy. Investors are therefore concerned that interest rates will remain high for an extended period.
The U.S. Department of Commerce reported that retail sales in the U.S. rose by 0.7 percent in July, exceeding forecasts of a 0.4 percent increase, indicating strong demand despite high Fed interest rates, and labor market data does not raise concerns either.
Furthermore, the minutes from the Fed’s last meeting in July showed investors that most monetary officials continue to prioritize fighting inflation, which has strengthened uncertainty about the future outlook for interest rates.
– I agree with the governors that we are not convinced that inflation is completely behind us. I think markets will be on edge regarding what the Fed will do in September and October – says Peter Tuz from Chase Investment Counsel.
At the same time, expectations for maintaining high interest rates have pushed yields on 10-year U.S. Treasuries to their highest level since October 2022 at 4.338 percent, increasing their attractiveness in capital markets.
New guidance regarding interest rates is expected next week from Fed Chairman Jerome Powell, at the annual symposium of the U.S. central bank in Jackson Hole.
On European exchanges, stock prices have fallen for the third consecutive week, reaching their lowest level in the past month. The London FTSE index slid 3.5 percent last week, to 7,262 points, while the Frankfurt DAX fell by 1.63 percent, to 15,574 points, and the Paris CAC strengthened by 2.4 percent, to 7,164 points.
