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Stocks gain ground as investors mull over recession fears

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US stocks ended the day in positive territory after choppy trading on Thursday as investors considered the risks of an economic slowdown and the Fed’s commitment to rein in inflation.

The Dow Jones Industrial Average rose nearly 200 points, or 0.64%, at the closing bell, earning a win after flirting with losses throughout the day. The S&P 500 rose nearly 1%, while the tech-heavy Nasdaq composite index rose 1.6%.

Federal Reserve Chairman Jerome H. Powell faced his second day of interrogations on Capitol Hill. He was urged by lawmakers on the House Financial Services Committee to take on the challenge of fighting price acceleration while avoiding a recession that could be triggered by the Fed’s actions. Powell insisted that reducing inflation was the top priority. During his two days of testimony, he also faced questions about supply issues beyond the Fed’s control and its power to set interest rates, underscoring the limits of the Fed’s influence. central bank.

Washington and Wall Street are closely watching the Fed’s latest rate hike, which marks the largest increase since 1994. The three-quarters of a percentage point jump is part of the Fed’s aggressive new strategy to contain inflation that has peaked for decades. But restrictive monetary policy carries significant risks. Higher interest rates could slow the economy too quickly, leading to mass layoffs and a recession, all without denting the high prices of goods still facing the rumblings of supply caused by the pandemic.

Fed Chairman Acknowledges Higher Interest Rates Could Trigger Recession

Inflation hit a new high in May – climbing 8.6% year-on-year – signaling that Fed policies aimed at containing soaring prices for food, fuel, housing and other necessities do not yet have a robust impact. This shook consumer and investor confidence and underscored the growing likelihood of a recession.

Citing higher interest rates and weak consumer demand, analysts from Citigroup and Deutsche Bank predicted a 50% chance for a coming recession.

But the Fed is unlikely to cut the interest rate without seeing clear evidence the economy is calming, Powell said during testimony before the House committee on Thursday.

Investors have a number of economic data points to analyze. The yield on the benchmark 10-year US Treasury fell to 3.08%, its lowest in two weeks. Bond yields move inversely to prices.

In the manufacturing and services sector, the US Manufacturing Purchasing Managers’ Index fell to 52.4 in June from 57 the previous month. The services PMI fell to 51.6 from 53.6 in May. S&P Global released the index after surveying more than 300 business executives, where respondents rate metrics such as production, costs and employment, offering insight into business conditions. Naeem Aslam, chief analyst at AvaTrade, said the falling numbers will push investors even further.

“The survey data is consistent with the economy expanding at an annualized rate of less than 1% in June, with the goods-producing sector already in decline and the vast services sector slowing sharply,” said Chris Williamson, chief economist at S&P Global. Market Intelligence, in a report. As hundreds of households cut non-essential goods and activities, such as travel and meals, producers experienced the first contraction in new orders since July 2020.

Employment has been reduced due to supply and demand issues. The S&P Global report says manufacturers and service providers are struggling to hire or retain workers, while falling consumer spending is making employers reluctant to replace customers.

Americans are starting to withdraw from travel and restaurants

New jobless claims fell by 2,000 to a seasonally adjusted 229,000, according to new data released Thursday by the Labor Department, indicating that the number of Americans filing for unemployment benefits remained relatively flat for the year. A widely watched indicator of layoffs, the level of jobless claims will be closely watched for signs of a weaker labor market as the Fed pursues more aggressive monetary policy and fears of a possible recession increase.

For homebuyers, the rising cost of borrowing has strained an already difficult housing market. The latest data from Freddie Mac showed the average weekly 30-year fixed-rate mortgage – the most popular home loan product – rose to 5.81%, nearly double what it was a year ago. one year old. The combination of rising mortgage costs and high house prices, which averaged $428,700, according to Fed data, could lead to lower sales.

“However, in reality, many potential buyers are still interested in buying a home, keeping the market competitive but stabilizing the past two years of scorching activity,” Freddie analysts wrote. Mac.

Mortgage costs $128,000 more over 30 years for $250,000 home

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