US stocks record longest run of quarterly declines since 2008 crisis

US stocks have notched their longest streak of quarterly losses since the market collapse of 2008, weighed down by central banks’ determination to tame inflation through higher interest rates.

The blue-chip S&P 500 index dropped 1.5 per cent on Friday, bringing the loss over the quarter between June to September to 5.3 per cent. The S&P has now declined for three quarters in a row, the most since the prolonged bear market that accompanied the global financial crisis.

The tech-heavy Nasdaq Composite also fell 1.5 per cent on Friday, reaching the index’s worst closing level since July 2020 to end the quarter down 4.1 per cent.

The sell-off in US assets this week persisted after the Bank of England intervened to calm turbulence in the UK government debt market.

The year has been rough for equities, as central banks including the US Federal Reserve have signalled they will stay the course on raising interest rates, reducing support for economic growth, in an effort to contain inflation. Lael Brainard, vice-chair, on Friday morning re-emphasised this view, acknowledging that although the Fed was conscious of market ructions, it remained committed to tighter monetary policy.

Peter Tchir, head of macro strategy at Academy Securities, said investors are coming to terms with the Fed’s dedication to cooling inflation, even if equities are battered in the process.

“Today, I think the market is realising that the economy is potentially slowing quickly, but that the Fed might do nothing to stop that. With the volatility in gilts and liquidity in all markets in the US deteriorating, more investors are getting nervous about the potential for a fast, large pullback in stock and bond prices,” Tchir said.

Emmanuel Cau, head of European equity strategy at Barclays, said: “Central bankers are telling us that they are going to tame inflation, that is going to come at [the] expense of the economy, and we don’t care about markets right now.”

US bonds sold off on Friday, but stayed above the lows plumbed early in the week. Prices plunged last Friday and Monday following the UK’s announcement of £45bn in unfunded tax cuts. UK and US bonds later stabilised after the BoE intervened this week with a new programme to buy long-dated debt.

The yield on the 10-year US Treasury note, the global benchmark for borrowing, rose 0.03 percentage points to 3.81 per cent after breaking above 4 per cent on Wednesday for the first time since 2010. Yields rise as their prices fall.

But despite some recovery in Treasury debt since the BoE’s intervention, the rapid tightening of monetary policy this year has both the two-year note, which is highly sensitive to policy expectations, and the 10-year note, on track for their biggest annual sell-offs on record.

Column chart of Percentage point change, annual showing The 10-year Treasury yield is on track for a record rise in 2022

On Friday, the yield on UK 10-year debt fell 0.05 percentage points to 4.08 per cent. UK yields across all maturities have swung by historic magnitudes in recent sessions, with the 10-year surging more than 0.4 percentage points on Monday before falling almost 0.5 percentage points on Wednesday.

Cau said central bankers had been at pains to tell the market that the BoE’s action should not have been viewed as the beginning of a broader return to supportive policy. “The [Federal Reserve] has been very clear that what the BoE is doing should be seen as isolated, and the Fed is going to stick to its plan. The [European Central Bank] is doing the same,” he added.

London’s FTSE 100 added 0.2 per cent on Friday, while Europe’s regional Stoxx 600 rose 1.3 per cent.

In Asian equity markets, Japan’s Topix index dropped 1.8 per cent on Friday. China’s CSI 300 index of Shanghai- and Shenzhen-listed shares shed 0.6 per cent, while Hong Kong’s Hang Seng added 0.3 per cent.

Additional reporting by Hudson Lockett in Hong Kong

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