The Dow loses nearly 1,100 points as investors digest the Fed’s interest rate hike

The Dow loses nearly 1,100 points as investors digest the Fed’s interest rate hike

The Dow loses nearly 1,100 points as investors digest the Fed's interest rate hike

Stocks fell on Wall Street on Thursday, erasing a rally from the previous day, as markets weigh the fallout from the Federal Reserve’s stepping up fight against inflation.

The Dow Jones Industrial Average fell 1,063 points, or 3.1%, to close at 32,997. The S&P 500 fell 3.6%, closing at 4,146, with more than 95% of companies listed on the benchmark in the red. The tech-heavy Nasdaq fell even more sharply, closing down nearly 5%.

It was the second-worst day for the S&P 500 since June 2020, and the worst day for the Nasdaq since that month, according to FactSet.

Markets joined a day earlier after the Fed said on Wednesday it would not move as quickly as some had feared by raising interest rates. But traders are starting to worry more about the impact of moves by the Fed to dampen borrowing demand as it tries to rein in soaring inflation.

“The Fed is between a rock and a hard place, and because of instant information, investors are feeling both fear and greed at exactly the same time,” said Sam Stovall, chief investment strategist at CFRA.

Bond yields have resumed their upward march, which will send mortgage rates upper. The 10-year Treasury yield rose sharply, to 3.1%, reaching its highest levels since late 2018.

Tech companies posted some of the biggest losses and weighed on the wider market, reversing from the strong gains they had made the day before. Internet retail giant Amazon fell 8.1% and Google’s parent company Alphabet fell 5.4%. Etsy fell 17.7% after giving a weak forecast.

Twitter rose 3% after Tesla CEO Elon Musk said he had got more support for its offer to buy the company.

The Fed raises its key rate by half a percentage point


The Fed’s aggressive move to raise interest rates has investors wondering if it can pull off a tricky balancing act — slowing the economy enough to halt high inflation, but not so much as to cause a slowdown. A recent survey by AllianzLife revealed that six in 10 respondents feared that a large the recession is “around the corner.”

“Concerns center on whether the Fed will have to get even more hawkish to depress demand — and that would mean slowing the economy more than they currently expect,” said Quincy Krosby, chief strategist. shares for LPL Financial, in an email.

Yet for now, most Wall Street economists believe the United States will avoid a recession this year, pointing to solid job growth, healthy consumer spending and solid corporate earnings.

Markets stabilized this week ahead of the policy update, but Wall Street feared the Fed might decide to raise rates by three-quarters of a percentage point in the coming months. Fed Chairman Jerome Powell allayed those concerns, saying the central bank was “not actively considering” such an increase.

The central bank also announced that it would start trimming its huge $9 trillion balance sheet, made up mostly of Treasury bills and mortgage bonds, starting June 1.

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When Powell said the Fed was not considering a gigantic hike in short-term rates, it sent a signal to investors to send stock prices skyrocketing and bond yields plummeting. A slower pace of rising interest rates would mean less risk of the economy tipping into recession, as well as less downward pressure on the prices of all kinds of investments.

But diminishing the odds of a 0.75% hike doesn’t mean the Fed is done with steadily and abruptly raising rates as it struggles to get inflation under control. BNP Paribas economists still expect the Fed to keep raising the fed funds rate until it hits a range of 3% to 3.25%, from zero to 0.25% earlier This year.

“We don’t believe this is President Powell’s intention,” BNP Paribas economists wrote in a report, citing market jubilation on Wednesday, “and we believe we could see the Fedspeak coming to seek tightening. financial terms”.

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