The Week on Wall Street
Concerns that the Fed may raise interest rates soured investor sentiment, sending stocks lower in a holiday-shortened trading week.
The Dow Jones Industrial Average slipped 0.75%, while the Standard & Poor’s 500 declined 1.29%. The Nasdaq Composite index dropped 1.93% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, lost 1.28%.1,2,3
Stocks Resume Their Decline
Stocks were bedeviled by rising bond yields and higher oil prices last week, with technology shares bearing the brunt of the decline. Hopes that the Fed may not find it necessary to raise interest rates were dented by economic data reflecting higher prices, rising labor costs, and fewer-than-forecast initial jobless claims.
The inflationary implications of higher oil prices also contributed to the growing sense that the Fed may implement additional rate hikes. While bond traders generally still expect no rate hike in September, the likelihood of a 0.25% rate hike or higher in November jumped to 43.3% by Friday morning from 35.4% a week ago.4
Oil Prices Spike
Last week, Saudi Arabia and Russia announced they would extend their oil production cuts to the end of the year. Investors had expected these cuts to be stretched to October, so the three-month extension surprised the markets.
The announcement sent oil prices higher on supply shortage worries in the coming winter months, with the West Texas Intermediate (WTI) oil price climbing to a 10-month high.5
Higher oil prices also sparked concerns that it would make the Fed’s inflation fight more difficult, potentially forcing the Fed to hike rates above market expectations.
Take a left-handed glove and turn it inside out. Which of your hands will it now fit – the left or the right?
Last week’s riddle: You enter a college classroom with 13 22-year-olds, 10 21-year-olds, and 14 20-year-olds. How many people are in the room?
Answer: 38 people (you plus the 37 students who are already in the room to begin with).
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