From a certain point onward, there is no turning back. The stock market reached that point this past week.
Oh, the market was hopeful, entering the week, that inflation had reached its peak, that the Federal Reserve would stop raising rates soon, that the bottom was in. But Tuesday’s release of August’s consumer-price-index data showed that inflation hadn’t been tamed and dashed all the goodwill, sending the major indexes to their worst day since 2020.
(ticker: FDX) decided to tell investors—a week early, mind you—that its earnings were terrible and that it was withdrawing its full-year guidance. All of this occurred the week before the Fed meets to discuss its next rate increase, which is likely to be another 0.75 percentage point.
There is no avoiding, now, what is coming, and the stock market knows it. The
Dow Jones Industrial Average
fell 4.1% for the week, while the
index dropped 4.8% and the
“Investors are facing the reality that the Fed has more work to do and recession risk is high,” says Dave Donabedian, chief investment officer at CIBC Private Wealth US. “We’re not talking about putting more money to work in equity markets. We’re preaching patience.”
That would seem to go against the maxim that it often pays to be optimistic when everyone is predicting the worst. Sundial Capital Research’s Jason Goepfert notes that fewer than 1% of the stocks in the S&P 500 finished higher on Tuesday, something that has happened only 28 other times since 1940….