Stock markets fell last week as investors were somewhat surprised by the Federal Reserve (Fed) shift in messaging. Both the S&P 500 (a proxy for large-cap domestic stocks) and the MSCI ACWI (a proxy for global large and mid-cap stocks) fell 1.9% during the week.
The Fed announced on Wednesday that it now expects two quarter point interest rate hikes in 2023. The change in narrative, shifting from the message that inflation is transitory to an acknowledgement that economic growth and inflation are increasing somewhat more quickly than anticipated, seemed to catch investors flat-footed.
The realization that the Fed may need to unwind easy money policies to contain inflation sooner than expected shook investor confidence. Not surprisingly, stocks that benefitted from the reflation themed trade so far this year (see the Dow Jones Industrial Average below) sold off, while large technology and ecommerce companies (see the Nasdaq Composite below) held up much better.
Prices & Interest Rates
Crude Oil (US WTI)
2 Year Treasury
10 Year Treasury
30 Year Treasury
Source: Morningstar, YCharts, and US Treasury as of June 19, 2021
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