Stocks eke out a gain but still mark worst week since 2020

Stocks ended another bumpy day mostly higher on Wall Street but still wound up with their biggest weekly losses since March 2020, when markets went into freefall at the onset of coronavirus lockdowns.

The S&P 500, the benchmark for many index funds in 401(k) accounts, edged up 0.2% Friday. It still lost 5.8% for the week, its tenth weekly loss in the last 11.

The Dow slipped 0.1% and the Nasdaq added 1.4%. Markets around the world have shuddered as investors adjust to the bitter medicine of higher interest rates that central banks are increasingly doling out to battle inflation.

The relatively quiet trading caps what’s been a tumultuous week.

Markets around the world have shuddered as investors adjust to the bitter medicine of higher interest rates that Federal Reserve and other central banks are increasingly doling out. Higher rates can bring down inflation, but they also risk a recession by slowing the economy and push down on prices for stocks, cryptocurrencies and almost all investments.

“Any lack of clarity or lack of confidence in the Federal Reserve is going to create a lot of volatility in the market,” said Megan Horneman, chief investment officer at Verdence Capital Advisors.

The S&P 500 remains in a bear market after it earlier this week dropped more than 20% below its record. It’s now about 23% below its all-time high set in January and is back to where it was in late 2020.

“There’s a lot of uncertainty right now about the timing of a recession, but the risks are clearly rising,” Horneman said.

On Wednesday, the Fed hiked its key short-term interest rate by triple the usual amount for its biggest increase since 1994. It could consider another such mega-hike at its next meeting in July, but Fed Chair Jerome Powell said increases of three-quarters of a percentage point would not be common.

The Fed has also just begun allowing some of the trillions of dollars of bonds it purchased through the pandemic to roll off its balance sheet. That should put upward pressure on longer-term interest rates and is another way central banks are yanking supports propped underneath markets to bolster the economy early in the pandemic.

The Fed’s moves are happening as some discouraging signals have emerged about the economy, such as weakening sales at U.S. retailers, even if the jobs market remains solid. That has raised concerns the Fed’s actions could wind up being too aggressive.

Powell will testify before Congress this upcoming week on monetary policy, and what he says is sure to guide trading. The testimony is scheduled for Wednesday and Thursday, which could mean more steep swings for Wall Street.

In the six days since a game-changing report showed U.S. inflation is accelerating, not easing as investors had hoped.