Going into the week ahead, all eyes will be on the two-day Fed rate-setting meeting that ends on Wednesday, US time.
A 50 basis-point rate increase is a given, but more important will be what the Fed says about the interest rate outlook.
"Markets will also watch closely to see if the Fed dot plot, which shows projections for the Fed funds rate by policymakers, shows the US central bank's policymaking committee turning more hawkish on its outlook for interest rates," said Mr Vasu Menon, executive director for investment strategy at OCBC Bank.
Also, the Fed is due to release its summary of economic projections that will offer its latest outlook for economic growth, inflation and unemployment. It will be interesting to see if it raises its forecast for inflation and, if so, how aggressive it will be going forward.
Elsewhere, markets will also be on the lookout for key Chinese economic data this week, including May industrial production, retail sales and new home prices.
Given the uncertainties and expected market volatility, active portfolio management is required.
While the immediate outlook may seem grim, don't lose sight of the more positive medium- to long-term outlook.
There is an abundance of liquidity on the sidelines looking for investment opportunities. And stocks are now at more attractive valuations after the sell-off in markets in recent months.
Look to buy on dips, but buy gradually. Be selective and avoid concentrated bets.
Diversification is especially important at this juncture in the markets to reduce downside risk.
SINGAPORE - Soaring inflation, falling US consumer confidence and higher interest rates have become the headline news weighing down market sentiment over the past week. And there appears to be no relief in sight.
A day after the European Central Bank raised rates, United States data showed inflation accelerating to a new 40-year high of 8.6 per cent last month, which is worse than expected.
Meanwhile, separate data on Friday showed that US consumer sentiment plunged early this month as soaring inflation battered household budgets. The University of Michigan's preliminary June sentiment index fell to 50.2 from 58.4 last month.
If there was any hope of the US Federal Reserve easing up on its monetary tightening, that hope went up in smoke with the latest price data.
A sharp stock-dump on Friday saw the Dow Jones index slump 4.6 per cent for the week to 31,392.79 points. Meanwhile the S&P 500 had its worst week since January as it shed 5 per cent for the week to 3,900.86. The tech-heavy Nasdaq continued to be under extreme pressure, losing another 5.6 per cent to 11,340.02 - its lowest close since late 2020.
In Singapore, the Straits Times Index (STI) closed on Friday at 3,181.73 for a 1.6 per cent loss for the week. For the year to date, the Singapore benchmark is down 3.9 per cent, which is not a bad performance, given how the rest of the world is doing.
Weighing down the index last week were the trio of local banks, which slipped about 3.1 per cent on average.
Still, the Singapore market is showing resilience. The STI has seen a 5.1 per cent slide in total returns since April 1, which is better than the 8.9 per cent drop for the FTSE Developed Index.
Stocks that have attracted the highest net institutional inflows during the current quarter are City Developments, Keppel Corp, Singtel, Jardine Cycle & Carriage, UOL Group, ST Engineering, Jardine Matheson Holdings, CapitaLand Integrated Commercial Trust, Sembcorp Industries, Sembcorp Marine, Singapore Exchange, Venture Corp, Lendlease Reit (real estate investment trust), CapitaLand Investment, Sheng Siong, Jiutian Chemical, Sats, Keppel Infrastructure Trust, Parkway Life Reit and Golden Energy and Resources.
Going forward, the key question is whether the United States and the rest of the world are now headed into a recession. Some, like Bank of America chief investment strategist Michael Hartnett, reckon the US is already in a technical recession.
But others, like US Treasury Secretary Janet Yellen, do not believe a US recession is imminent, pointing to still-strong consumer spending and the fact that inflationary pressures are due largely to the war in Ukraine and the ramping up of demand after two years of the Covid-19 pandemic.
Will consumer demand start waning as prices continue to rise?
After all, nearly 70 per cent of the US$24 trillion (S$33 trillion) US economy is supported by consumer spending. It is a key ingredient keeping the economy going.
There are many market experts who believe the negativism is overdone.
Inflation is probably peaking about now, they say. The global supply chain crunch is being resolved. China is due to open up soon. As the war in Ukraine drags on, the world will adapt to a new normal, including higher energy prices, the argument goes.