Stocks Suffer as Fed Raises Rates Once Again

Last Updated: Tuesday, September 27, 2022 2:20 PM | Neal Farmer

Good news for stocks, the week is finally over. The S&P 500 dropped over 5% during the week with most of the damage coming over the past two days of trading.

Fed Bumps Rates Another 75 Points

Markets started to really fall after the Federal Reserve raised interest rates by another 75 basis points and looks poised to continue raising rates. The central bank is looking for another 125 basis point increase by the end of the year leading to higher concerns of an impending recession.

Financial institutions warned of an economic slowdown as Bank of America strategists said investor sentiment is the lowest it's been since the global financial crisis. Meanwhile, Goldman Sachs cut its year-end forecast for the S&P 500 from 4,300 to 3,600 due largely in part to higher interest rates.

Finally, the U.S. dollar continues to surge and reach highs while the euro hit a near 20-year low and the pound approaches parity with the dollar as it reached a 37-year low.

New Housing and Unemployment Claims Data

New economic data was relatively light with housing data being the main focus for the week. Housing starts easily surpassed estimates, rising from 1.404 million to 1.575 million in August. Analysts had predicted a smaller jump to 1.448 million starts. Existing home sales also beat out expectations with sales staying pretty flat from 4.82 million to 4.8 million in August while analysts projected a decline to 4.7 million sales. However, building permits underperformed as they fell from 1.685 million to 1.517 million last month compared to the smaller projected dip to 1.61 million permits.

Outside of housing data, initial unemployment claims rose from 208,000 to 213,000 new claims as continuing claims dropped to 1.379 million from 1.401 million claims. Analysts expected a larger increase in initial claims to 220,000.

Earnings

Earnings reports were pretty light this week as well with the larger names releasing quarterly results on Wednesday and Thursday. Costco (COST), FedEx (FDX), General Mills (GIS), Accenture (ACN), and AutoZone (AZO) round out the highlights for the week.

Costco and FedEx both saw their shares fall Friday despite surpassing earnings estimates. Investors grew concerned over Costco’s margins as the chain deals with higher labor and freight costs but will not be raising membership prices. Meanwhile, FedEx only beat its newly revised earnings estimates after warning investors last week and withdrawing its full-year guidance.

Additionally, Accenture and AutoZone shares fell following earnings beats with Accenture missing on full-year revenue projections and IT spending cuts being weighed down by a stronger dollar and higher costs. Sentiment around AutoZone meanwhile was affected by higher freight costs as investors remain concerned over companies dealing with tighter margins.

However, General Mills was able to defy the odds this week and see its shares surge following its strong earnings report in which it surpassed earnings and revenue estimates as well as raised its full-year guidance.

All in all, the S&P 500 fell 4.65%, the Dow Jones Industrial Average dropped 4.00%, and the NASDAQ lost 5.07%.

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