Markets continue to surprise — to the downside — with the S&P 500 falling over 4% since Thursday and down over 10% in 2022.

What’s the big deal? Investors just can’t catch a break — with the Fed doling out aggressive interest rate comments and China lockdowns pounding the markets.

1/ Raising rates: On May 4th, the Fed will conclude their meeting with a key announcement: how much to raise interest rates.

Last week, Fed Chair Jerome Powell made his final comments before the meeting — saying it’s “appropriate in my view to be moving a little more quickly” (CNBC).

• Odds: A 0.50% hike looks like the base case — with CME placing the odds at 95%. But some traders also see the possibility of a 0.75% hike.
• Recession: Last week, San Francisco Fed President acknowledged that a series of rate hikes could send the economy into a recession.

2/ China lockdowns: It’s been nearly a month since the zero-COVID policy China implemented strict lockdowns on Shanghai. Markets have fallen over fears that the contagion is spreading to other regions.

• Beijing: Over the weekend, China ordered mandatory testing in parts of its capital city — with some analysts worried that Beijing could turn into Shanghai-style lockdowns.
• Impact: Lowering outlook on global growth — while adding more pressure to supply chains and product shortages.

Hiding spots: According to Morgan Stanley strategists, “the market has been so picked over at this point, it’s not clear where the next rotation lies” (BBG).

They think the next move could be a sharp drop — but sees potential for pharma/biotech to outperform.