Strongest weekly decline in stock markets since the outbreak of the pandemic
The FTSE All World Index falls 5.6% this week as rising interest rates threaten the outlook
Ibrahim Al-TarikMay 11, 2025
US stocks posted their sharpest weekly slump since the outbreak of the coronavirus pandemic, after investors were spooked by a series of rate hikes by major central banks and the risk of an ensuing economic slowdown.
The S&P 500 index ended the week down 5.8 percent, posting its worst weekly performance since March 2020. A 0.2 percent gain on Friday did little to offset the damage from previous trading days.
The FTSE All World Index, which tracks emerging and developed markets, was also down 5.6 percent on the week, its biggest decline since March 2020.
The stock declines are a sign of an increasingly gloomy global market outlook as the The Bank of England and the Swiss National Bank this week as the Federal Reserve hiked interest rates to combat rising inflation.
"More aggressive central bank stance is increasing headwinds for economic growth and equity markets," said Mark Haefele, chief investment officer at UBS Global Wealth Management. "Risks of a recession are mounting, while a soft landing for the US economy appears ever more difficult to achieve.
The Swiss National Bank (SNB) surprised markets on Thursday with its first rate hike since the global financial crisis erupted in 2007, raising the cost of borrowing up half a percentage point after inflation in the country hit a 14-year high last
month.Hours later, the BoE joined the trend and hiked rates by 0.25 percentage point after warning that inflation in the UK would rise to over 11 percent this year after
the US Federal Reserve hiked interest rates by 0.75 percentage points a day earlier, making it the biggest rate hike since 1994. And in a monetary policy report to be presented to Congress on Friday the Fed stated that its "commitment to restoring price stability - essential to maintaining a strong en labor market is necessary - is unconditional".
"The key turning point [for equities] will be when the Fed decides it has done its job on inflation, but it is recognized that it is a long way from that," said Timothy Murray, Strategist in fund manager T Rowe Price's multi-asset team, who indicated they hold an "underweight" position in equities due to economic risks.
In Europe, the regional Stoxx 600 index closed 0.1 percent higher after losing 2.5 percent in the previous session. On a weekly basis, it was down 4.6 percent.
Some analysts believe the decline in European equities has bottomed out. Bank of America upgraded its assessment of the Stoxx 600 to "neutral" from "negative" as the sharp decline since the all-time high in January has priced in the expected bad macroeconomic news.
"We expect central banks' focus to shift from inflation to slowing growth," the Wall Street Bank said.
In Treasury markets, the yield on the 10-year US Treasury fell 0.4 percentage point to 3.23% after fluctuating sharply in recent days as investors braced for expectations of higher interest rates and an end to the asset purchase program the Fed that had pumped billions of dollars into the US economy. Bond yields fall when their prices rise.
The Fed's aggressive rate hikes have also hurt corporate bond markets, with investors withdrawing $6.6 billion from funds buying lower-quality US high-yield bonds in the week ended June 15.
Meanwhile, Italian bonds continued their rally after European Central Bank President Christine Lagarde told EU finance ministers that it would be a grave mistake to question the central bank's commitment to fighting the region's financial "fragmentation". .
Italy's debt has recovered from a sharp sell-off after the ECB said at an unscheduled meeting this week that it would accelerate work on a new tool to combat rising borrowing costs in the euro-zone's weaker economies. Italian 10-year bond yields fell 0.17 percentage points to 3.57 percent on Friday, from 4.19 percent at the start of the week.
Oil prices fell sharply on Friday amid fears central bank actions could slow economic growth and dampen demand for crude oil. International benchmark Brent oil closed at $113.12 a barrel, down about 5.5%. This was the lowest close for Brent since May 20.
The decline followed a sharp rise in prices over the past six weeks, prompted by ongoing concerns that economic sanctions against Russia over the war in Ukraine will tighten supply in energy markets.
