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Following a string of stocks and rate hikes worldwide, Asian equities sank on Friday, following heavy losses in the US and Europe, as concerns about the economy grew. On Thursday, the United Kingdom and Switzerland boosted interest rates a day after the Federal Reserve of the United States announced the highest rate hike since 1994.
Rates are being raised to decrease demand and alleviate some of the pressures driving up consumer costs. Investors are concerned that the actions may cause the global economy to stall further. Prior to the US rate hike this week, markets were already in trouble, with the S&P 500 down more than 20% from its January peak.
The Nikkei 225 index in Japan fell 1.6 percent on Friday, while Australia’s main stock market index fell more than 2%. The S&P 500 fell 3.2 percent on Thursday, while the tech-heavy Nasdaq fell more than 4%. Since January 2021, the Dow Jones Industrial Average dropped more than 2.4 percent for the first time, falling below 30,000 points.
Companies that rely on discretionary spending, such as Nike and airlines, were among the most brutal hit. Energy businesses, which would also face a decline in demand if the economy slowed, also fell.
Tesla’s stock dropped 8.5% after the company announced price hikes due to increased costs. In addition, US road safety regulators are also looking at the autopilot functions of the electric vehicle.
Spotify’s stock dropped 7% a day after the streaming behemoth announced it was suspending recruiting in the face of economic uncertainty, making it the third major tech business to do so.
The stock market and economy in the United States
The Federal Reserve raised its benchmark short-term interest rate by a whopping three percentage points on Wednesday, the largest increase since 1994. It may consider another such rate hike at its July meeting, but Fed Chair Jerome Powell has stated that increases of three-quarters of a percentage point are unusual.
The Fed has also begun to let some of the trillions of dollars in Treasuries it bought during the pandemic fall off its balance sheet. This should put upward pressure on longer-term interest rates, and it’s another way central banks are pulling supports that had previously been propped beneath markets to help the economy.
Even though the labor market is strong, the Fed’s actions come as some alarming signals about the economy emerge. The most recent was a report released on Friday that revealed that industrial production in the United States was lower than projected in the previous month. In addition, other dismal statistics, such as sinking retail spending and sour consumer confidence, have fueled fears that the Fed’s measures would be overly forceful.
Powell is scheduled to speak to Congress regarding the monetary policy this week, and anything he says will undoubtedly influence trading. The testimony is set to take place on Wednesday and Thursday, which could result in even more wild swings in the stock market.
On Friday, Nasdaq led the market thanks to gains in technology equities. Nvidia surged 1.8 percent, while Amazon gained 2.5 percent.
Other stocks, which had taken a beating on Thursday due to fears of a probable recession and rising inflation, have now recovered. American Airlines Group gained 6.4 percent, while the Norwegian Cruise Line jumped 10.1 percent. Despite this, both stocks were down more than 12% on the week.
Smaller company stocks outperformed the market since they tend to move more in lockstep with forecasts for the health of the US economy. The Russell 2000 index of smaller companies increased by 15.86 points, or 1%, to 1,665.69. However, at 7.5 percent, it was still down for more than the entire market for the week.
Because of the Juneteenth holiday, all US markets will be closed on Monday.