Economist Desmond Lachman believes that the stock market decline will end when the Fed shifts to a less hawkish monetary policy stance. “I expect that this will occur by year end, at which stage we could see stock prices begin to recover,” he said.

by Matthew Rusling

WASHINGTON, July 22 (Xinhua) — U.S. markets ended the week on an overall uptick, but gains were pared on Friday in all three major indexes.

The Dow Jones Industrial Average shot up 423 points since Monday, the S&P 500 rose by 78 points, and the Nasdaq increased 272 points over the week.

But some of those gains were lost on Friday.

The S&P 500 dropped by 37 points from the previous day, as investors reacted to a disappointing earnings report from social media company Snap, which caused the stock prices of companies including Facebook to drop like a rock.

The Dow Jones Industrial Average and tech-heavy Nasdaq pared their gains from the previous day as well, by 137 points and 225 points, respectively.

On a positive note, the week saw airlines profit from heavy demand, as air travel has made a big comeback more than two years after COVID-19 hit the United States.

COVID-19 restrictions are largely a thing of the past, and Americans are keen to take to the skies and head out on vacation this summer.

The nation’s three largest carriers – America, United and Delta – put out their quarterly earnings, and each has expressed optimism about demand for the second half of the summer.

But at the same time, the travel boom has caused headaches due to higher ticket prices, increased flight cancellations and worker shortages, among a host of other issues.

Meanwhile, Microsoft, with a nearly 2 trillion U.S. dollar market cap, announced it would cut back on hiring new employees amid inflationary pressures on consumers. Also of concern is the possibility of recession on the horizon, a point of debate among many economists.

A Microsoft spokesperson told CNBC earlier this week that as the tech giant “gets ready for the new fiscal year, it is making sure the right resources are aligned to the right opportunity.”

Other big tech companies are scaling back on hiring for certain teams, including Alphabet, Facebook and Apple.

In a sign that Americans are moving on from COVID-19, markets this week paid little attention to the news that U.S. President Joe Biden tested positive. The president has been both fully vaccinated and boosted, and is taking Paxlovid, the antiviral treatment from vaccine-maker Pfizer.

Desmond Lachman, senior fellow at the American Enterprise Institute and a former official at the International Monetary Fund, told Xinhua that in the coming months, stock prices are likely to be determined by the economy’s performance and the Federal Reserve’s interest rate policy.

“My view is that we will experience a meaningful recession by the end of the year,” Lachman said, adding that he believes the Fed will maintain its hawkish monetary policy stance in a bid to fight inflation.

On that basis, “stock prices have yet further to fall,” despite already seeing a significant drop in recent months, Lachman said.

He believes that the stock market decline will end when the Fed shifts to a less hawkish monetary policy stance.

“I expect that this will occur by year end, at which stage we could see stock prices begin to recover,” Lachman said.

Dean Baker, senior economist at the Center for Economic and Policy Research, noted that the market was priced very high before its recent fall.

“It is still priced high, but it is not nearly as out of line as in the fall. Also, there is no reason to expect a surge,” Baker said.

All this occurs as Biden’s approval rating has hit all-time lows, mostly on record inflation and gasoline prices. Biden’s approval rating stands at 37.2 percent – lower than any president at this point in office since the 1950s.

Around half of Americans have some sort of investment in the stock market, and the question remains whether the still volatile market will hurt Biden.

Christopher Galdieri, assistant professor at Saint Anselm College, told Xinhua that in terms of stock market drops, “I don’t think this, specifically, is going to hurt Biden. What’s dragging him down is inflation, gas prices, the lingering pandemic.”

“But bad economic news of any sort is just one more thing that’s going to pull down his approval ratings,” said Galdieri.

Clay Ramsay, a senior research associate at the Center for International and Security Studies at the University of Maryland, told Xinhua it’s a reasonable guess that over half of voters this November will have some stock market involvement.

But the effects of inflation on household income are more significant, and in some ways more widespread.

“These factors are likely to resonate even more than the bad news about stocks,” Ramsay said.