What happened in the stock market this week?

The FTSE 100 suffered a 2% decline amid fears of a potential recession later this year. Here’s what else happened this week in the stock market.

Scene depicting the City of London, home of the FTSE 100

Image source: Getty Images.

Key Points

  • The FTSE 100 finished 2% in the red this week.
  • Oil giants recorded windfall profits, boosting share prices by 10%, although other stocks didn't share the same fortune.
  • Higher interest rates from the Bank of England and warning of an economic retraction spooked investors.

The FTSE 100 saw a decline of over 2% in the first week of May. Rising interest rates and fears of a potential recession later this year stoked some panic selling in the stock market. A 0.5% rate hike across the Atlantic also soured investor sentiment.

FTSE Miners down and fliers up

That’s what many miners have been thinking as they saw their share prices slide. Antofagasta and Rio Tinto were hit particularly hard as their biggest customer, China, reported disappointing purchasing managers index (PMI) figures. The authorities in China continue to lock down major cities over Covid-19 infections.

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On the flip side, FTSE airlines were rejoicing this week because of freer travel. A positive Wizz Air update led to airline shares rising higher on Monday. The budget airline carried over 3.62m passengers in April, a 542% increase. However, an only half-decent report from IAG then sent airline share prices on a descent. The group finished the week 10% lower. Nonetheless, IAG reported a positive outlook, expecting to achieve an operating profit by Q2.

Oils profits spurt

Although BP lost a hefty $25.5bn to cover its exit from Russia, it still doubled underlying profits in the first quarter, to $6.2bn. It even unveiled a US$2.5bn share buyback programme! Its competitor, Shell, also saw a tripling in profits. With oil prices back up to the $110 per barrel mark, FTSE oil investors are likely rejoicing about a 10% gain this week. There are still calls for a windfall tax, though, so that’s something to keep an eye on.

Up to 8% off!

After news that non-food inflation jumped 2.2% in the last month, retailers have seen their share prices go on sale. Big FTSE names Kingfisher, JD, and Dunelm are now trading at up to 8% discounts from a week ago.

Fed up with inflation

The US Federal Reserve increased the Fed Funds rate by 0.5%, instead of the much feared 0.75%. This sent the US markets on a euphoric 3% rally. The Fed will also begin reducing asset holdings on its balance sheet on 1 June. The high then simmered overnight as US markets plunged the next day, also negatively affecting the FTSE. This is because the majority of FTSE 100 companies earn income in US dollars. So an unfavourable exchange rate doesn’t bode well for profit margins. The pound is now at a two-year low against the US dollar.

Low house stock losing market

The Bank of England followed swiftly with a 0.25% increase to its own interest rate. This brings the UK’s bank rate to 1%. But what sent the British stock market crashing afterward was the Bank’s inflation expectations. Governor Andrew Bailey expects inflation to peak at 10% later this year, with a potential contraction of the British economy in the fourth quarter, as household incomes continue to decline.

The share prices of Lloyds and NatWest fell given rising fears of a housing crash, amid a lack of supply already in the market. After all, both Halifax and Nationwide housing data reported a decline in house price growth. This is also why I don’t think UK banks are a good place to house my money right now.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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