Rosalind Evans
After enduring a difficult period, Wall Street saw a modest uptick on Friday, though it still marks the third consecutive week of losses.
Midday trading showed the S&P 500 increasing by 0.5%, partially recovering from a significant decline spurred by investor concerns that interest rates will remain high for an extended period. As of 11:07 a.m. Eastern Time, the Dow Jones Industrial Average edged up by 28 points or 0.1%, standing at 34,099, while the Nasdaq composite gained 0.9%.
Financial markets have faced mounting pressure as bond yields soar to levels not seen in over ten years. This uptick gained speed this week following signals from the Federal Reserve that it’s less likely to lower its benchmark interest rate as substantially as investors had hoped for 2024. The elevated federal funds rate, at its highest since 2001, is eroding investment returns as it counteracts high inflation.
Bond yields did show some signs of relaxing on Friday, slightly alleviating stress on the equity market. The 10-year Treasury yield dipped to 4.43% from 4.50% on Thursday, though it remains near a peak level from 2007. The two-year Treasury yield, more sensitive to Fed policy, also declined to 5.11% from 5.15%.
Higher interest rates generally discourage investors from paying premium prices for stocks, particularly affecting sectors like technology, where future growth is heavily anticipated. Nvidia, for example, managed to cut its weekly loss to 4.3% after a 2.4% gain on Friday. The Nasdaq, densely populated with tech and high-growth stocks, is slated for a 2.7% weekly decline.
In tech industry developments, U.K. authorities granted initial approval for Microsoft’s revamped $69 billion acquisition of gaming company Activision Blizzard, sending the latter’s shares up 1.7%. Microsoft shares also rose by 0.3%.
In automotive news, shares for Ford and General Motors both increased, even as the United Autoworkers Union announced an expansion of its strike actions to 38 facilities across 20 states. Ford’s stock grew by 3.4%, and GM’s by 0.5%.
Labour strikes among auto workers, demanding better pay and benefits, could compound inflationary pressures should they lead to product shortages. This is among a series of economic challenges, including potential governmental shutdowns, the resumption of student loan repayments, and global economic instability.
Overshadowing these issues is the growing realization on Wall Street that high-interest rates may persist. The Fed indicated an additional rate hike this year, and it seems more cuts in 2024 are less likely than previously anticipated.
Prolonged high-interest rates can suppress inflation but can also have far-reaching, adverse impacts on various economic sectors. In fact, earlier this year, elevated rates were a contributing factor in the collapse of three major U.S. banks.
Economic analysts are adjusting their forecasts accordingly. EY Chief Economist Gregory Daco now anticipates cuts of 0.75 percentage points in 2024, as opposed to a full point.
Daco suggests that recent data indicating a job market slowdown might signify a “controlled landing” from soaring inflation, rather than a sharp recession— a scenario increasingly feared as interest rates look set to remain elevated.
Meanwhile, a Friday report indicated sluggish business activity across various sectors. A preliminary index from S&P Global showed a seven-month low, as service industry growth decelerated and both services and manufacturing demand waned.
In international markets, Chinese stock indexes saw gains after Bloomberg reported potential changes allowing increased foreign ownership. In a move to ease tensions, economic working groups were launched by the U.S. Treasury Department and China’s Ministry of Finance.
Hong Kong’s Hang Seng surged by 2.3%, and Shanghai’s stock market increased by 1.5%. Asian markets outside China were mostly down, while European markets displayed mixed results.
As Wall Street navigates the turbulent waters of elevated interest rates, inflation concerns, and global economic challenges, investor focus will likely remain on the Federal Reserve’s next moves. Friday’s modest gains may offer a glimmer of hope, but with a myriad of issues looming on the horizon—from labour strikes to international trade tensions—the market’s path to stabilization remains uncertain. Whether these are early signs of a “controlled landing” or precursors to a more severe downturn will become clearer as additional economic indicators and policy decisions unfold.
