THE WEEK ON WALL STREET

A record-high inflation report, the prospects of a more aggressive Fed, and growing recession fears sent stocks lower– though a Friday rally pared losses.

The Dow Jones Industrial Average slipped 0.16%, while the Standard & Poor’s 500 lost 0.93%. The Nasdaq Composite index dropped 1.57% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, lost 3.49%.^1,2,3

STOCKS SLIDE

As the week opened, recession fears intensified with reports of renewed Covid-related lockdowns in China. Also, the U.S. dollar continued to climb, reflecting global economic weakness. 

June's consumer price index report showed price increases accelerating. Year-over-year prices jumped 9.1%, the fastest pace in over 40 years. Speculation grew that the Federal Reserve might contemplate a 100 basis point increase in short-term rates later this month rather than the 75 basis point hike it earlier signaled. The market rebounded on Friday following a Federal Open Market Committee member saying he favored a 75 basis point hike. Also helping the Friday rally was a strong retail sales report and additional second-quarter company reports. ⁴

DOLLAR STRENGTH

The increasing strength of the U.S. dollar moved to center stage last week as the dollar index (a measure of the U.S. dollar to six other major currencies) reached a fresh high, while the euro fell to parity with the dollar and to its lowest level since 2002. ⁵

A rising U.S dollar hurts overseas profits when converted into dollars and it also makes U.S. products and services more expensive. It’s a challenge for large, multinational companies that