U.S. stocks and exchange traded funds were lower Friday, snapping a four-week winning streak as renewed concerns over the interest rate hike outlook weighed on risk sentiment.
On Friday, the Invesco QQQ Trust (QQQ) declined 2.0%, the SPDR Dow Jones Industrial Average ETF (DIA) was down 0.7%, and the SPDR S&P 500 ETF Trust (SPY) was 1.2% lower. Meanwhile, the S&P 500 and the Nasdaq were on pace for their first weekly loss in four weeks, whereas the Dow Jones Industrial Average was heading toward a slight weekly gain.
U.S. stock markets have rallied on hopes that the Federal Reserve will rein in its aggressive monetary policy tightening as inflation previously came in lower. However, the more optimistic expectations were muted, following the latest Fed minutes that did not provide any clarification on the future pace of interest rate hikes.
“Today was the day that the bullish investors just didn’t have the muscle to keep pushing the game higher and that happens at some point – optimism fades and the bears get a bite at the apple,” Mike Zigmont, head of trading and research at Harvest Volatility Management, told Reuters.
The comments from Fed officials and the release of the minutes even fueled fears that policymakers were committed to further hikes ahead.
“This feels like a re-evaluation of whether there has been enough financial tightening,” said John Roe, head of multi-asset funds at Legal & General Investment Management, told the Wall Street Journal. “And if there hasn’t actually, could we get more pain from central banks having to do more?”
Investors will now have to weigh the prospects of whether or not the latest rally is just another bear-market rally or the beginning of a new bull market as the Fed monetary policy tightening still has some worried about triggering a slowdown or a potential recessionary downturn.
“The question is really about how long the Fed continues to hike for,” Seema Shah, chief global strategist at Principal Global Investors. “The debate is around whether they are going to hike into 2023 and how high they are going to go.”
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