Wall Street Notches a Third Week in the Red Amid Rising Interest Rates

This week, the focus of investors’ attention was on U.S. retail sales data. They soared in July, suggesting increased potential inflation pressure. This points towards a bullish perspective on interest rates within the world’s largest economy, particularly following higher-than-anticipated producer prices. Treasury yields rose accordingly (10-year up 10 basis points over the week), as investors were digesting the prospect of the Fed lifting rates again later this year. The minutes from the Fed’s July meeting, released Wednesday, showed most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.

The Dow Jones Industrial Average lost 2.21% for the week while the Nasdaq Composite fell 2.59% and the S&P 500 slipped 2.11%. In Europe, stock indexes plunged in unison with the MSCI EMU down 2.29% and the FTSE down 3.48%. Similarly, there was no hiding place for investors in Asia. The Shanghai Composite shed 1.80% as the Chinese economy is facing a downward spiral. Country’s property sector experienced a challenging week, leading the People's Bank of China to assure they will maintain increased liquidity conditions following a rate cut earlier in the week. China's Evergrande Group, known as the world's most debt-laden property developer, filed for U.S. bankruptcy protection. Worries about China's worsening property crisis and its impact on the faltering economy swept across regional markets. Japan’s Nikkei took a nosedive (-3.15%), not far from its end-of-May level. Korea’s KOSPI Composite plunged 3.35%, Australia’s S&P/ASX was down 2.62% while India’ NIFTY 50 slid 0.61%. 

Crypto assets run into selling pressure  

Bitcoin, the leading cryptocurrency, experienced a surprising decrease of almost 11% over the week, dropping to a crucial $26,000 mark (two-month low). At the same time, Ethereum faced similar harsh selling pressures and fell below $1,550. 

This unexpected dip is speculated to be due to rumors that SpaceX, Elon Musk's company, may have sold its entire cache of Bitcoin holdings estimated at around $373 million. Even though concrete evidence supporting these claims is presently elusive, they have undeniably added to the uncertainty within the unpredictable cryptocurrency landscape.

Coupled with these rumors are escalated interest rates, reported to be at a 15-year high - a detrimental development for Bitcoin's value and investor risk-taking behavior. This significant surge in rates indicates potential obstacles thwarting cryptocurrency growth. 

Adding to this impact could be recent remarks from John Reed Stark, former SEC attorney. He stated that due to several compelling reasons, despite applications from prominent Wall Street firms, the SEC would not approve a spot bitcoin ETF application. 

Broad-based sell-off  

Against this backdrop, all the S&P sectors ended the week in negative territory for the second time this year, with tech stocks outperforming the broad market (information technology down 0.82%, the week’s best performer). Nvidia gained 5.98% as investors were buying last week’s dip. The health care sector also fared better than the broader market (-1.57%), supported by Eli Lilly (LLY) shares, up 3.44% after surging by 17.53% last week. The other defensive sectors did not help to limit the decline in stock markets. Utilities and consumer staples were down 2.01% and 2.44% respectively. 

Energy snapped its long winning streak (down 1.66%) as oil prices retreated (WTI crude oil falling 2.33% for the week). Concerns about China’s shaky economic recovery as well as a stronger dollar prompted profit-taking on crude oil after seven weeks of gains on tightening supply from OPEC+ output cuts. It’s also worth noting that the Energy Information Administration said the U.S. crude production hit three-year highs for a second week in a row, despite a 15% drop in drilling rigs.

The consumer discretionary sector experienced the most significant downturn (-4.10%), weighed down by the freefall of Tesla stocks (-11.19%). To combat growing competition in China, the electric car manufacturer has once again reduced its prices. Sales of Tesla cars manufactured in China fell by 31% month-on-month in July, marking the first decrease since December.

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