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News of the inflation reduction was not enough to calm the financial markets. They now fear that the Federal Reserve (FED) will interfere in the growth of the U.S. economy to prevent price increases from rising further.
On May 11, the U.S. Bureau of Labor Statistics announced that annual inflation stood at 8.3% (the monthly variation was 0.3%). Although the price increase was lower compared to March, this was not enough to reassure the financial markets.
Following the announcement of the inflation report, the stock index that gathers the 500 largest U.S. companies, the S&P 500, fell 1.7%. The Nasdaq index of technology companies fell 1.4%, suggesting future losses for technology companies. Meanwhile, the Dow Jones Industrial index fell 0.7%.
Financial markets fear a recession in the U.S. economy
In view of the rising inflation, financial markets fear that the FED will raise interest rates even more, which directly impacts the cost for people asking for loans, thus reducing consumption, but also increasing the cost of investments.
Although Fed Chairman Jerome Powell did not announce an upcoming interest rate hike, markets continue to monitor a possible increase during summer.
Some economists are predicting that the United States could soon experience stagflation, that is, a situation where prices continue to rise, but the economy does not, and could even enter a recession.
GDP growth data for the first quarter of 2022 is no more encouraging. According to the Department of Commerce, the U.S. economy contracted by 1.4% during the first quarter. Everything seems to indicate that the drop was due to an unprecedented increase in imports, which negatively affects the formula by which the economy’s output is calculated.
Technology companies set the tone for the fall of the financial markets
Several highly valued technology companies have suffered from market uncertainty. During Wednesday’s trading, Netflix shares fell 6.27%, while shares of Meta, formerly Facebook, fell approximately 4.5%.
The e-commerce and cloud computing company, Amazon, also performed poorly during the day on Wednesday as it dropped 3.20%. Tesla, the electric car company of eccentric millionaire Elon Musk, fell 8.25%, while Apple declined by 5.18%.
Not all companies fell during Wednesday, some in fact have shown signs of recovering despite adverse market conditions, as is the case of WeWork which after a sharp drop in 2021, appreciated by 5%.
The war in Ukraine is fueling the markets with uncertainty
The war in Ukraine is also adding uncertainty to the market, as Pentagon analysts believe that Vladimir Putin is prepared to wage a prolonged conflict.
The conflict between Russia and Ukraine is jeopardizing access to key products in the global supply chain, such as wheat that supplies all of North Africa, steel, gas and oil from Russia.
Although the price of oil fell slightly, as inventories have managed to recover faster than expected and talks in Europe to ban Russian crude oil imports are progressing slowly, the concern of running out of the Slavic country’s hydrocarbons lingers.
Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica