U.S. stocks retreated, ending the S&P 500’s five-week winning streak, as concerns over higher borrowing costs and hawkish signals from central banks resurfaced. The S&P 500 dropped -1.4% for the week with consumer discretionary and information technology sectors performing the worst. With the significant yearto-date gains, there are concerns about stretched valuations and the potential for more rate hikes, as emphasized by Fed Chair Jerome Powell’s remarks on inflation and the possibility of further rate increases in 2023.
Central banks globally are raising rates to control inflation, but there are fears that the Federal Reserve might tighten policy excessively, potentially leading to a recession. Atlanta Fed President Raphael Bostic expressed optimism in defeating inflation without harming the labor market. The Fed recently kept rates unchanged after a series of increases, allowing more time to evaluate the impact of banking stress and higher borrowing costs. The benchmark rate remains in the range of 5% to 5.25% and the U.S. 10yr yields closed ~3.7%
Oil prices fell as economic concerns and higher interest rates spooked traders. WTI crude futures dropped 3.5% for the week to $69.25, while Brent crude fell to $73.22. A sluggish global economy, central banks’ focus on inflation, and a strengthening U.S. dollar have contributed to weak oil prices. Traders fear aggressive rate hikes may impact economic growth in the future.