THE WEEK ON WALL STREET

Hawkish comments from Fed Chair Jerome Powell overshadowed many largely positive earnings results, sending stocks lower for the week.

The Dow Jones Industrial Average declined 1.86%, while the Standard & Poor’s 500 dropped 2.75%. The Nasdaq Composite index fell 3.83% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, advanced 0.50%.^1,2,3

FOCUS COMES OFF EARNINGS

With the inflation report in the rearview mirror and a Fed meeting two weeks away, many may have expected corporate earnings to be in focus last week. Comments by Jerome Powell stole the spotlight.

Investors began the week awaiting earnings reports looking for insight into businesses handling the latest inflation, a jittery consumer, tighter monetary policy, and ongoing supply chain issues. Despite one high-profile earnings disappointment, corporate profits appeared better than expected. By the time trading began on Thursday, 17% of S&P 500 companies had reported, and 81% had beaten Wall Street analysts’ estimates. Investors responded positively, sending share prices higher until Powell’s comments on Thursday afternoon triggered selling into the day’s close and accelerated through Friday.⁴

POWELL UNNERVES MARKETS             

On Thursday, at an event hosted by the International Monetary Fund, the Fed Chair offered his view that it may be appropriate to move more quickly on raising interest rates. He indicated that a 50 basis point hike was on the table for the Federal Open Market Committee (FOMC).⁵

His comments also emphasized the need to restore price stability, recalling the successful efforts of former Fed Chair Paul Volker, who used a series of rate hikes to tame the inflation of the 1970s and early 1980s. While some observers anticipated these comments, yields rose, and stocks fell in response.