The U.S. stock market is on track for its longest bear streak of 2024, shaken by geopolitical turmoil and the realization that interest rates won’t fall anytime soon.
The S&P 500, a major stock index, fell 0.9% on Friday, its sixth consecutive decline, the worst series since October 2022.
Down 3% this week
This decline led the S&P 500 to decline 3% over the week, the third consecutive weekly decline. This is the longest streak of weekly losses since September 2023. At that time, the combination of debt, a possible shutdown of U.S. government activities and high interest rates led to negative sentiment.
These fears dissipated at the end of 2023, when inflation slowed. Investors then bet on an upcoming rate cut and prices jumped during the first quarter of 2024. But inflation is stubborn and this month it appeared that the Federal Reserve might not cut rates anytime soon. . In addition, the worsening conflict in the Near and Middle East is worrying, with Israel having struck Iran early Friday.
“It doesn’t bode well, obviously,” says Andrew Brenner, head of global fixed income at National Alliance Securities.
Investors withdrew 21 billion from funds investing in US stocks between April 3 and 17, according to EPFR Global. This slowdown contrasts violently with the first four months of 2024, when 80 billion were placed there. And the unease is not only manifested on the stock market.
PHOTO AGENCE FRANCE-PRESSE
A man walks past a poster depicting missiles on a street in Tehran. The markets are falling, fearing a conflagration in the Near and Middle East and stubborn inflation.
Yields on U.S. bonds, which determine interest rates on many loans, have risen. The average rate on 30-year mortgages, the most popular home loan in the United States, topped 7% on Thursday for the first time this year.
Geopolitical tensions
The dollar is also rising sharply, weighing on countries that import goods from the United States and issue dollar-denominated bonds. Oil prices, fueled by geopolitical tensions, have risen more than 10% since the start of the year.
“Nothing is positive right now,” Mr. Brenner said.
Higher-than-expected inflation is eroding investor optimism about the intentions of the Fed, whose key rate remains near its 20-year high. “The recent numbers, clearly, do not reinforce our optimism and instead indicate that it will likely take longer than expected to achieve that optimism,” Fed Chairman Jerome Powell said Tuesday.
Economists at Société Générale have mourned a reduction in American rates in 2024. Economists at BNP Parisbas and Wells Fargo have also revised their reduction forecasts downwards.
On the futures markets, which allow investors to bet on the evolution of interest rates, we are betting on one, or even two cuts of a quarter of a point by the end of 2024. At the start of year, six declines were expected over this period.
The move was initially welcomed on the stock market because it came against the backdrop of a strong economy that would support corporate profits. But the latest inflation statistics have cooled investors and economists.
John Williams, the president of the New York Fed, even spoke this week of a further rate hike, rather than a cut, if inflation remains stable, adding that this is not the most likely scenario.
Other officials say rate easing could come much later this year, or even in 2025. So far, those concerns do not threaten the strength of the U.S. economy. The S&P 500 is down more than 4% this month, but it remains up 5% for the year.
Optimism nonetheless
Furthermore, a recent Bank of America survey of fund managers around the world revealed a level of optimism not seen since January 2022: global growth is expected to accelerate. The biggest risk, those surveyed said, is rising inflation that could keep interest rates high, squeezing growth abroad and at home.
Reflecting some of these concerns, the Russell 2000 index of smaller companies – more sensitive to the outlook for the national economy – lost about 5% for the year.
“I think the recent selling pressure is just the beginning,” said Peter Tchir, head of macro strategy at Academy Securities.
This article was published in the New York Times.
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