Wall Street plunges as recession fears mount

U.S. stocks plummeted and government bond yields soared again, as investors are increasingly concerned about the growing threat of a deep recession (see the Fixed Income market review of last week). Fears have intensified after the Federal Reserve raised rates by 0.75% this week and revised its year-end rate upwards to 4.4%, from 3.4% three months ago, signaling super-sized hikes ahead “even if it requires more economic pain.”

The S&P 500 nosedived by almost 4.65% over the week to close at its lowest level (3,693.23) since June, bringing its year-to-date performance to -22.51%. The tech-heavy Nasdaq similarly sank 5.07%, plunging deeper into bear market territory (-30.53% YTD). The Dow Jones Industrial Average fell 4% week-over-week, or 1,232 points at 29,590.41 (-18.57% YTD).

Unsurprisingly, European stocks endured the worst week since early March with the MSCI EMU down 4.69% (-23.24% YTD) amid heightened geological tensions. Russia has just announced the partial mobilization of 300,000 military reservists Wednesday, after several battlefield setbacks in Ukraine, while Europe’s energy crisis has taken a turn for the worse. 

Asian markets fell in unison, though to a lesser extent. The Shanghai Composite slid 1.22% (-15.15% YTD). China is easing COVID lockdowns. Japan’s Nikkei shed 1.50% (-5.69% YTD).

Selloff across the board   

For the seventh time this year, a sea of red washed over all the S&P sectors. Energy was the hardest hit (-9%) by a surge in the dollar and worries that a deeper global recession may hurt oil demand. The price of a barrel of West Texas Intermediate tanked 7.45% to a nine-month low of $78.74. Consumer discretionary stocks were also one of the biggest drags (-7.02%) on the broader market, weighed down by Tesla (-9.24%). By contrast, defensive sectors such as health care (-3.38%), utilities (-3.05%), and consumer staples (-2.15%) outperformed the broad market. Ditto for information technology (-3.59%) as Apple stocks weathered the storm, edging down 0.18%. Ming-Chi Kuo, known as “the analyst who reveals all of Apple’s secrets,” said that the strong demand for iPhone 14 Pro models could help boost Apple’s revenue.