by Matthew Rusling
WASHINGTON, June 17 (Xinhua) — U.S. markets Friday ended a chaotic trading week that saw the Dow Jones Industrial Average drop below the key 30,000 mark for the first time since January 2021.
The Dow finished a crazy week of trading on Friday at 29,888, on the highest rate hike by the Federal Reserve in almost three decades.
The Fed raised rates Wednesday by 75 basis points after inflation hit 8.6 percent in May — above analysts’ expectations — and after economists and investors widely criticized the central bank for acting too slowly to quell the worst inflation in 40 years.
Markets rallied on Wednesday after the Fed’s rate hike announcement but lost those gains on Thursday.
The Dow slipped 2.42 percent, or 741 points, to a new low of 29,927 by the end of trading Thursday, the S&P 500 slumped 3.25 percent, and the Nasdaq plunged 4.08 percent, hitting its lowest point since September 2020.
In and of itself, the Dow’s 30,000 level is not crucial, but has a phycological meaning to many investors who are watching shares diminish by the week.
Recent events have spurred a growing chorus of economists, analysts and investors to predict a mild recession. Investors fear a downturn could cause even more pain for their portfolios.
Sam Bullard, senior economist at Wells Fargo, a major U.S. bank, told Xinhua he believes a recession is likely next year.
While a downturn is not assured, it looks “more likely than not,” according to a Wells Fargo report published Thursday.
Bullard’s view was echoed by Brookings Institution Senior Fellow Barry Bosworth, who said the risks of a recession next year have increased.
The Fed’s and President Joe Biden’s economists miscalculated, and are now scrambling to catch up, Bosworth said.
If there’s one bright spot in the chaotic market, it’s that down the road there will be opportunities to buy solid stocks. But analysts and investment gurus cautioned that investors must wait until markets stabilize.
Jim Cramer, host of CNBC’s Mad Money, echoed those thoughts, warning investors to be patient before diving in to buy.
“The repricing of all equities is creating some opportunities. But until things slow down with the tape, those opportunities would and could lead to more pain,” said Cramer.
Still, some believe there is a light at the end of the tunnel.
“To me there’s more evidence right now that inflation is peaking than there has been in the entire recovery,” James Paulsen, chief investment strategist of The Leuthold Group, a U.S. investment research firm, told Xinhua.
The core Consumer Price Index and core Producer Price Index have rolled over year on year for the last two months in a row, and “that’s never happened in this recovery,” Paulsen said, adding that wage inflation has “clearly moderated.”
And if inflation is already peaking and it becomes clearer over the next few month, “I think the bond market will calm down, the Fed will calm down, and yeah, the market will rally,” Paulsen said.
Paulsen questioned that if there has been enough tightening, saying monetary tightening has been fairly significant, as has fiscal tightening, and the dollar is up.
“The question is do we recess or not? I bet we don’t yet, even though so many think we are,” Paulsen said. “But even if we do, a mild recession is already (baked into) the market,” Paulsen said. ■