S&P 500 falls as rates reach 15-year high

Posted: 15 December 2022 11:33 pm
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Stocks fall as the Fed warns it will continue to raise rates despite weaker economic figures.

It has been a busy 24 hours for markets, with 2 key pieces of economic data showing the US economy could be slowing.

A combination of the Federal Reserve (the Fed) continuing to lift rates and weaker-than-expected retail sales saw the markets have their worst day since September.

The S&P 500 is down 2.49% to 3,895.75. Only 14 companies in the S&P 500 were trading in positive territory.

At the same time the Dow is down 2.25%, while the tech-heavy Nasdaq Composite fell 3.23%.

These falls are likely to be reflected in the Asian markets when they open up.

The Fed warns of tougher monetary policy

Continuing its rate-tightening cycle, the Fed has once again lifted rates.

Although, it is now slowing the rate of growth down. After 4 75-basis-point rises, the Fed is now lifting rates by 50 basis points, moving them to between 4.25% and 4.5%.

Rates are now at their highest point in 15 years.

But with higher rates, the Fed is predicting a tougher economic environment for 2023.

The central bank says economic growth is down to 0.5% from 1.2% just a few months earlier.

But in welcome news, Fed chair Jerome Powell predicts rate rises could slow.

“Having moved so quickly, and having now so much restraint that is still in the pipeline, we think that the appropriate thing to do now is to move to a slower pace,” he said.

Retail figures also come in lower than expected

It appears as though the fastest rate-rising cycle in the last 40 years is starting to have an impact.

US retail figures fell to just 0.6% in November from October, although the figures don’t account for price changes and inflation continued to rise during the month.

It appears as though spending patterns are changing.

Spending across popular Black Friday items including clothing, electronics and sporting goods fell, while grocery stores, health, personal care and restaurants and bars appear to be holding up.

What’s next for shareholders?

How the market will react will largely depend on future economic figures.

The Fed is aiming for a “soft landing” meaning inflation cools, but the economy doesn’t end up in a recession.

Investors will be looking to see if rate hikes can slow down the pace of consumer spending without tanking the economy.

For the latest popular stocks, see our guide that looks at the best shares to buy now across a range of exchanges, including the Nasdaq, New York Stock Exchange and London Stock Exchange, and the biggest indices, including the S&P 500 and FTSE 100.

This article offers general information about investing and the stock market, but should not be construed as personal investment advice. It has been provided without consideration of your personal circumstances or objectives. It should not be interpreted as an inducement, invitation or recommendation relating to any of the products listed or referred to. The value of investments can fall as well as rise, and you may get back less than you invested, so your capital is at risk. Past performance is no guarantee of future results. If you're not sure which investments are right for you, please get financial advice. The author holds no positions in any share mentioned.

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