Major U.S. stock benchmarks end mixed

Published On: May 11, 2022Categories: Stocks & Shares1.7 min read

The Dow Jones Industrial Average booked a fourth straight day of losses on the eve of a key inflation reading

Major U.S. stock benchmarks ended mixed Tuesday, with the Dow Jones Industrial Average booking a fourth straight day of losses, on the eve of a key inflation reading.

On Monday, the Dow fell 654 points, or 2%, while the S&P 500 declined 3.2%, to close below the 4,000 threshold and at its lowest since March 31, 2021. The Nasdaq Composite plummeted 4.3% to its lowest finish since November 2020.

The stock market has been choppy as investors gauge whether the U.S. economy will have a ‘soft’ or ‘hard’ landing as the Federal Reserve seeks to bring high inflation under control by lifting interest rates, according to Steve Chiavarone, senior portfolio manager and head of multi-asset solutions at Federated Hermes.

It’s a jump ball right now, said Chiavarone. Volatility is going to reign for some time.

Under a so-called soft landing, the Fed manages to tame inflation without causing a recession, while a hard landing entails the central bank getting inflation under control through aggressive rate hikes that trigger an economic recession. Under a third scenario — stagflation — the Fed tightens monetary policy enough to cause a recession but still not enough to tame inflation, according to Chiavarone. He said the market is trying to figure out which of those three is most likely.

Uncertainty around the economic outlook as the Fed pursues an aggressive cycle of rate increases and other measures aimed at reining in inflation running at its hottest in more than four decades has unsettled investors, according to analysts.

Markets are clearly confused about what the Fed will do this year and just how aggressive it will get. That can be seen in the volatility in expectations for where the fed funds rate will be at the end of 2022, as seen in fed funds futures. And it is reflected in stock market volatility, with the VIX above 30, said Kristina Hooper, chief global market strategist at Invesco, in a note.

The VIX is the Cboe Volatility Index VIX, a measure of expected S&P 500 volatility over the next 30 days, which is trading above its long-term mean near 20.

About the Author: Jonathan Adams

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