Stocks were turbulent on Friday, as they headed for a loss for the third quarter of the year, the first time the S&P 500 has posted three consecutive quarters of losses since the aftermath of the global financial crisis more than a decade ago.
The S&P 500 swung between gains and losses, moves that came after the government released another hotter-than-expected inflation reading. The Federal Reserve is rapidly increasing interest rates as it tries to temper the pace of rising prices, but persistent inflation raises the risk that it will need to raise rates even higher and wind up inflicting too much damage on the economy.
The S&P 500 is on course for its third straight weekly fall and its third straight quarterly slump, the kinds of losses investors haven’t faced since 2009. It’s on pace to end the three months through September more than 3 percent lower, with a year-to-date loss of almost 24 percent.
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The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.
- Discordant Views: Some investors just don’t see how the Federal Reserve can lower inflation without risking high unemployment. The Fed appears more optimistic.
- Weathering the Storm: The rout in the stock and bond markets has been especially rough on people paying for college, retirement or a new home. Here is some advice.
- College Savings: As the stock and bond markets wobble, 529 plans are taking a tumble. What’s a family to do? There’s no one-size-fits-all answer, but you have options.
- Enduring Meme Stocks: The frenzy that saw traders congregate on social media and push stock prices for companies like GameStop higher can no longer be explained as simply a pandemic phenomenon.
By raising borrowing costs for consumers and companies, central banks around the world are trying to temper demand and slow the pace of rising prices. That’s important for the long-term health of the economy but its typically bad for stocks in the short run, as higher costs crimp earnings.
“The conditions are not yet in place for a sustained turn in market sentiment,” said Mark Haefele, chief investment officer of UBS Global Wealth Management. “In our view, such an improvement will require compelling evidence that the threat from inflation is receding.”
The stock slide caps a wild week of trading, with a new crisis for investors emanating out of Britain after a proposed tax cut stoked inflation fears and raised concerns over the country’s borrowing needs, sending the British pound sharply lower and government bond yields soaring.
The whipsaw moves highlighted the challenges facing central banks around the world as they try to contain inflation and unwind pandemic-era support measures for markets, with the Bank of England pushed to step in and buy bonds again to help soothe markets from the fallout of the government’s proposed policies.
Yields on government bonds jumped this week, but they have been rising substantially all year. In the United States, the yield on the two-year Treasury bond, which is sensitive to changes in Fed policy, has surged almost 3.5 percentage points this year to 4.17 percent, with a hefty 1.22 percent rise in the third quarter alone. It puts the yield on course for its biggest yearly increase on record.
Higher rates and higher yields, as well as the United States’ relative economic health when compared to other countries around the world, have drawn investment to Wall Street, helping strengthen the dollar when compared with a basket of other currencies that represent major U.S. trading partners. By that measure, the dollar has just experienced its biggest quarterly rise since the first quarter of 2015 and is the strongest it has been in two decades.
Elsewhere, Europe’s Stoxx 600 was on course to end the quarter roughly 12 percent lower, its biggest quarterly loss since the first quarter of 2020 and the market turmoil induced by the pandemic.
In Japan, the Topix index fell 7.9 percent for the three months to the end of September, while the mainland stock index in China — the CSI 300 — fell more than 20 percent, its worst quarterly loss since the third quarter of 2015.
