US stocks drop on Fed officials’ hawkish views

St. Louis Fed President James Bullard, a voting member of the rate-setting committee, said Thursday that the central bank needed to raise interest rates to tame inflation. His comments followed strong retail sales numbers (+1.3% vs. 1.0% gain expected) and speeches by other Fed officials reiterating that further rate hikes were ahead. The fight against inflation is far from over. 

Wall Street stocks closed moderately lower, giving back some of last week’s strong gains. The S&P 500 fell 0.69% week-over-week, bringing its year-to-date performance to -16.80%. The tech-heavy Nasdaq was down 1.57%. The composite index has lost 28.76% so far this year. The Dow Jones Industrial Average was virtually unchanged (-0.01% over the week, down 7.13% for the year). 

In Europe, stocks indexes bucked the trend though reports of a Russian missile strike on Polish territory sparked a brief sell-off on Tuesday. The MSCI EMU was up 0.87% over the week (-12.08% YTD). The FTSE gained 0.92% and is now flat year-to-date (+0.01%).

In Asia, Japan’s Nikkei dropped 1.29% (down 3.10% YTD). The Shanghai composite gained 0.32% (down 14.91% YTD) though China is still grappling with its worst Covid-19 outbreak in six months. Indian stocks edged down 0.23% (NIFTY 50 up 5.49% YTD).

Defensive sectors gain momentum   

Unlike last week, very few sectors finished the week in positive territory. Growth stocks lagged value stocks, which were supported by gains in the consumer staples sector (1.69%, best performer this week), and other defensive sectors such as utilities (+0.83%) and health care (+0.99%). Moderna (MRNA) climbed 6% after reporting encouraging data on its bivalent vaccine targeting Covid-19. 

Elsewhere, investors were wincing as the Fed officials maintained their hawkish stance. The energy sector underperformed (-2.35%) on concerns about weakening demand in China. Moreover, European oil and natural gas inventories reached near-peak levels. 95.3% of EU gas storage is filled to date. Consumer discretionary (-3.15%) also pushed the broader market lower with the freefall of megacap shares. Tesla (TSLA) and Amazon.com (AMZN) plunged 8.05% and 6.60% respectively. The e-commerce giant confirmed jobs cuts would continue in the coming months amid a “challenging” economy.

US stock markets will be closed on Thursday, November 24, in observance of the Thanksgiving holiday.