Global Market Tumble: The End of a Three-Month Rally and the Onset of Economic Cooling

On Friday, the stock market took a significant dive, marking the end of its worst week since the notorious Silicon Valley Bank debacle back in March. This recent downturn suggests the once vibrant three-month market rally may have reached its finale. The root of this abrupt shift can largely be traced back to the unease sowed by the aggressive tightening of monetary policies by central banks overseas.

International Central Bank Actions: The Catalysts for Change

The actions of foreign central banks have significantly alarmed investors. The Bank of England, taking the lead, surprised many by increasing its crucial interest rate by a greater than anticipated half a percentage point. Other central banks, including those in Switzerland, Norway, and Turkey, followed suit, raising their rates as well. The collective actions of these central banks have begun to manifest their impact on the economy, putting the brakes on an overheated market.

The Economic Slowdown: Business Activities Cool Down Across the Globe

This cooling effect has become evident, especially in the business sector. Europe’s business activity experienced a sharp decline in June, a change much more dramatic than what we’ve witnessed in the U.S. Despite the relatively moderate slowdown in the U.S., it’s clear that the cooling effect is global, albeit at varying intensities.

Technical Factors and the S&P 500: A Rapid Surge, A Swift Pullback

Part of the market’s pullback this week can be attributed to technical reasons, particularly where the S&P 500 index is concerned. The index had risen above the 4,400 points mark last week, the first time it achieved such a feat since April of the previous year. After a period of trading within a range of 3,800 to 4,200 points since January, the index’s rapid jump from 4,200 to 4,400 points was noteworthy.

The Fall of Major Market Averages: An End to Winning Streaks

Unfortunately, this week saw a halt to the multi-week winning streaks enjoyed by all three major market averages. The S&P 500 dropped 1.4%, marking the end of five consecutive weeks of gains. Similarly, the Nasdaq also lost 1.4%, breaking an eight-week winning streak. Meanwhile, the Dow Jones Industrial Average dipped 1.7%, concluding its three-week run.