Week of June 21, 2021

The Dow Jones Industrial Average is coming off its worst week since last October, dropping 3.5% on the week.  The S&P 500 and NASDAQ also declined but not as dramatically, losing 1.9% and 0.2%, respectively.

U.S. stocks fell last week as investors digested new economic projections from the Federal Reserve and worries rate hikes could come sooner than expected.  Last Wednesday, the Fed raised its inflation expectations and forecast interest rate hikes in 2023.  “The Feds ‘surprise” move toward tapering that took the markets lower last week is just the moment of recognition for a tightening trend that began months ago,” Mike Wilson, chief U.S. equity strategist, said in a note.  “When combined with the peak rate of change in economic and earnings revisions, it sets up a more difficult summer.”

The Treasury yield curve flattened last week, hitting banks ld curve flattened last week, hitting banks, and sending a signal of a potential economic slowdown.  The yields of shorter-term Treasuries, like the 2-year note, rose – reflecting expectations of the Fed raising rates.  Longer-term yields, like the 10-year note, declined – a sign of less optimism toward economic growth.