The previous surge of market enthusiasm in early June, triggered by the Federal Reserve’s decision to halt interest rate hikes, is now a thing of the past. Central Bank officials in the United States and worldwide have conveyed a resolute message to the markets this week: the process of raising rates is not yet complete.
Unfortunately, Wall Street did not react positively to this message. U.S. stocks are projected to experience a week of declines, and the Nasdaq is poised to conclude an eight-week winning streak.
A little over a week has passed since the Federal Reserve temporarily halted its 14-month series of interest rate hikes aimed at combating inflation. However, it seems that this pause will be of short duration.
During testimonies before the House and Senate this week, Fed Chair Jerome Powell stated that the central bank is still far from achieving its 2% inflation target and anticipates further rate increases.
Powell informed the Senate Banking Committee on Thursday that “the majority of the committee believes it would be appropriate to raise the federal funds rate once or twice by the year’s end.” Similar remarks were made on Wednesday to the House Financial Services Committee.
Surprising investors, the Bank of England opted for a significant increase in interest rates, raising them by half a percentage point, contrary to expectations of a smaller adjustment.
Central Banks Raise Rates
In their statement, policymakers at the Bank of England justified their decision by citing persistent inflation due to a tight labor market and robust consumer demand, as indicated by economic data.
Previously, central banks had been implementing smaller interest rate adjustments as inflation showed signs of easing from its recent highs. However, the current situation suggests a departure from this trend.
In addition to the Bank of England, central banks in Norway and Switzerland also raised their rates to the highest levels seen in a decade on Thursday.
Norwegian officials expressed the likelihood of further rate increases in August, while Switzerland signaled their intention to continue tightening monetary policy.
In the United States, the stock market has experienced a sustained upward trend, primarily driven by the surge in tech stocks, which are particularly sensitive to inflation and interest rate changes. However, the prospect of a more hawkish monetary policy could bring this positive momentum to a halt.
Although stocks showed a modest recovery on Thursday, there is a sense that investors are slow to fully grasp the likelihood of prolonged higher interest rates, according to Scott Wren, Senior Global Market Strategist at Wells Fargo.
Analysts at financial firm Commonwealth emphasized that rising rates have an impact on both economic growth, as the Federal Reserve aims for a slowdown in demand, and on financial markets. This potential obstacle is something that will require close attention throughout the remainder of the year.
3M Settles $10.3 Billion Lawsuit
On Thursday, 3M (MMM) announced that it had reached a settlement agreement to address lawsuits relating to the contamination of water supplies in the United States by toxic “forever chemicals,” as reported by my colleague Samantha Delouya.
The multinational company, known for its production of various industrial products including Post-It notes, Scotch Tape, and n95 masks, said – would pay up to $10.3 billion over a span of 13 years to support public water suppliers that have identified these chemicals in drinking water.
Polyfluoroalkyl and perfluoroalkyl substances (PFAS), commonly referred to as “forever chemicals,” have been detected in numerous household items such as makeup and carpeting. These chemicals are used in the production of coatings that repel water, grease, and oil.
This settlement comes after 3M has faced thousands of lawsuits over the past two decades, alleging that the company knew about the health risks associated with PFAS, including cancer and developmental defects, and that these chemicals contaminated drinking water systems across the United States.
Following the news of the settlement, 3M’s stock experienced a nearly 5% increase in after-hours trading. This positive market reaction likely stems from the resolution of potential litigation, eliminating the need for further court appearances.
3M emphasized that the settlement does not imply an admission of liability. Should the court not approve the settlement agreement, the company expressed its readiness to continue defending itself against the ongoing litigation.
However, despite the settlement news, shares of 3M remain down approximately 16.3% year-to-date.
Musk & Zuckerberg Engage in a Showdown
At times, prominent American executives display behavior reminiscent of both leaders and characters from the WWE.
Elon Musk, the tech billionaire and CEO of Tesla (TSLA), and Mark Zuckerberg, the CEO of Meta, have expressed their desire to settle their ongoing rivalry through a cage fight.
Recently, Musk took to Twitter, stating his willingness to engage in a cage fight with Zuckerberg. In response, Zuckerberg fired back on Instagram by sharing a screenshot of Musk’s tweet accompanied by the caption “Send Me Location,” according to my colleague Hanna Ziady.
Musk further engaged in the discussion by replying to a tweet from Alex Heath, the editor of tech news website Verge, with the phrase “Vegas Octagon,” referring to the renowned Las Vegas arena that hosts the Ultimate Fighting Championship.
In a separate tweet, Musk humorously mentioned a move called “The Walrus,” where he would simply lie on top of his opponent without taking any action.
Meanwhile, bookmaker Paddy Power is skeptical about the fight ever happening. However, if it does, they believe both individuals have an equal chance of winning.
A spokesperson for the Irish company expressed their hope that if the fight were to occur, it might serve as a wake-up call for both men, stating, “If this fight does actually go ahead, with a bit of luck, they’ll both knock some sense into each other.”
