On Sunday night, US stock futures declined, as Wall Street experienced one of the worst weeks it has seen this year. There was a 1.6% drop recorded in the Dow Jones Industrial Average or 176 points. Meanwhile, futures tied to the S&P 500 fell by 0.95%. There was also a 1.5% decline recorded in Nasdaq 100 futures.
Declines in the Previous Week
Last week, the major averages had also seen their biggest decline in a week, which had previously happened in January this year. There was a 4.6% fall in the Dow and a 5.1% drop in S&P 500. As for the Nasdaq Composite, it plunged by 5.6%. Most of these losses occurred on Friday after the US inflation data turned out to be hotter than expected and ended up spooking investors.
There was a 2.7% drop, or that of 880 points in the Dow, and both the Nasdaq Composite and S&P 500 lost 3.5% and 2.9%, respectively. On Friday, the Bureau of Labor Statistics reported that there was an 8.6% increase in the Consumer Price Index (CPI) last month, which is the fastest increase that has been recorded since 1981 in December. This gain was higher than what economists had predicted.
Moreover, the core CPI, which does not include prices of food and oil, was also higher than estimates, as it stood at 6%. Moreover, the consumer sentiment index of the University of Michigan also published its preliminary readings, which show that it had hit 50.2, which is a record low.
Impact in the Future Weeks
The US CPI data has come just ahead of the policy meeting of the US Federal Reserve, which is scheduled for Wednesday this week. The US central bank is expected to announce an interest rate hike of about half a point. The rates have already gone up this year twice, which include an increase of half a point in May, in an effort to tame the surging inflation.
Market analysts said that there had been no signs of inflation reaching its peak in the CPI report of May, even though it is expected that it will peak soon. The report also shows that there is a greater risk of recession because the Fed will probably remain hawkish for the next while. Both consumer and investor demand has been affected. But, the numbers have increased the possibility of a mild recession happening, as the monetary policy will be tightened aggressively.
As far as stocks are concerned, they have already had a very difficult year because fears of a recession are rising with consumer prices. There has been an 18.2% drop in the S&P 500 from last year to Friday’s closing. Moreover, it is also significantly lower than an intraday record that had been seen in January by about 19.1%. As for the Dow, it has plunged by a whopping 13.6% this year and the Nasdaq Composite has found itself in the bear market territory. This is because the tech-heavy index has fallen by 27.5% in this year alone.