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How U.S. financial markets have performed in the past 15 months as Fed rate hikes fueled wild swings

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It’s been a roller-coaster ride for U.S. financial markets the past 15 months, after the Federal Reserve started its most aggressive monetary tightening campaign in four decades to tame inflation. 

After 10 consecutive interest-rate hikes which took the benchmark fed-funds rate from near zero to a range of 5% to 5.25%, the Federal Reserve this past week finally decided to pause rate hikes to figure out whether the U.S. economy was fully digesting all that tough medicine.

Market participants hope this is the beginning of the end of that tightening era even though it is still unclear whether the interest-rate-related market turbulence is over as policy makers leave the door open to more increases to bring inflation back to their 2% target. 

Here’s a look at how the monetary-tightening campaign fueled wild swings and reshaped the U.S financial markets in the past 15 months. 

After 15 months of pain from the Federal Reserve’s aggressive monetary tightening, the U.S. benchmark S&P 500 index
SPX,
-0.37%

has regained all of the losses suffered since the first rate hike on March 2022, according to Dow Jones Market Data.

The S&P 500 ended at 4,409 on Friday, above the 4,262.45 closing level on March 15, 2022 — the day before the central bank announced a quarter of a percentage point increase to near-zero fed-funds rate, its first hike in nearly three years as it sought to combat soaring prices. 

The S&P 500 still has a way to go to regain its all-time closing high of 4796.56 set on Jan. 3, 2022.

All three U.S. benchmark indexes accelerated declines in the spring of 2022 as concerns over heightened inflation and the prospects of a recession weighed heavily on risk assets. In June 2022, the S&P 500 entered a bear market for the first time since March 2020.

However, after reaching the gauge’s bear-market low and bottoming out in October 2022, stocks started to rebound in the first half of 2023 with renewed hope in the possibility that global central banks are nearing the end of their rate hike cycle. 

Moreover, the craze around artificial intelligence, a debt-ceiling resolution and evidence that the U.S. economy is more resilient than expected have driven bullish sentiment on megacap technology shares. A broad stock-market rally last week had the S&P 500 officially exiting its longest bear-market run since 1948. 

Rising interest rates also knock on to the bond market, where yields, which move inversely to prices, have soared since March 2022. 

The yield on the policy-sensitive 2-year U.S. Treasury note
TMUBMUSD02Y,
4.720%

settled at 4.72% on Friday afternoon. It traded at 1.867% on March 15, 2022. 

The yield on the benchmark 10-year Treasury
TMUBMUSD10Y,
3.769%

jumped to 3.768% from 2.148% over the same period, according to Dow Jones Market Data.

The yield topped 5% in March 2023, its highest level since 2007, according to Dow Jones Market Data. However, unlike stocks, U.S. Treasury notes have not bounced back from the plunge as traders still priced in a slightly higher chance of a quarter-of-a-percentage-point rate hike in September following a similar move in July, which would take the Fed’s policy rate target to a range of 5.5%-5.75%, according to CME FedWatch Tool. 

Gold prices
GC00,

have recovered all their losses since the Federal Reserve’s first interest-rate hike of the cycle 15 months ago. Gold for August delivery
GCQ23,

Friday rose 50 cents, or less than 0.1%, to settle at $1,971.20 per ounce on Comex, compared with $1,919.20 on March 15, 2022, according to Dow Jones Market Data.

Meanwhile, the U.S. dollar which tends to have an inverse relation with gold prices, rallied for much of 2022 on the back of rising interest rate. That strength gave way to weakness in the fall of 2022.

The ICE U.S. Dollar Index
DXY,
+0.18%
,
which tracks the greenback against six other currencies, has risen 3.3% since March 15, 2022, but it has fallen 10.3% from its 2022 high of 114.11 in late September, according to Dow Jones Market data. 

Cryptocurrencies, such as bitcoin and ether
ETHUSD,
-0.65%
,
have slumped since the central bank started its hiking cycle in March 2022. Bitcoin
BTCUSD,
-0.67%

tumbled 33.2% to trade at $26,328 on Friday afternoon from $39,416 on March 15, 2022.

See: BlackRock’s Larry Fink once said his clients had zero interest in crypto. Here’s how things have changed since 2018.

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