Dow drops nearly 1,100 points as investors digest Fed rate hike

Stocks on Wall Street tumbled Thursday, erasing a rally from the previous day, as markets assess the implications of the Federal Reserve’s escalation. fight inflation.

The Dow Jones Industrial Average fell 1063 points, or 3.1 percent, to close at 32,997 points. The S&P 500 fell 3.6% to close at 4,146, with more than 95% of companies included in the benchmark index in the red. The tech-heavy Nasdaq fell more sharply, closing down about 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 Crowded the day before After the Fed said on Wednesday it would not move as quickly as some had feared raising interest rates. But traders are starting to worry more about the impact of the Fed’s moves to curb demand for borrowing money while trying to cool high inflation.

“The Fed is between a rock and a hard place, and because of the immediate information, investors are feeling fear and greed at the exact same time,” said Sam Stovall, senior investment analyst at CFRA.

Bond yields resumed their upward trajectory, which will send Mortgage rates Top. The yield on the 10-year Treasury rose sharply, to 3.1%, reaching its highest level since late 2018.

Tech companies suffered some of the biggest losses and weighed on the overall market, reversing the solid gains they made the previous day. Online retail giant Amazon fell 8.1 percent, and Google’s parent company Alphabet fell 5.4 percent. Etsy is down 17.7% after giving a poor outlook.

Twitter rose 3% after Tesla CEO Elon Musk said he did Secure more support for trying to take over the company.

The Federal Reserve raises the key interest rate by half a percentage point


The Federal Reserve’s aggressive shift to raising interest rates has investors worried about whether it can implement a tough balancing act — slowing the economy enough to stem high inflation but not to the point of triggering a recession. newly survey From AllianzLife I found that six out of 10 participants were concerned about a major Recession ‘just around the corner. “

“Concerns are focused on whether the Fed will have to get tougher to cut demand — and that will include the economy slowing more than they anticipate now,” Quincy Crosby, chief equity analyst at LPL Financial, said in an email.

But for now, most Wall Street economists believe the US will pull out of a recession this year, citing strong job growth, healthy consumer spending and solid corporate earnings.

Markets stabilized this week ahead of the policy update, but Wall Street was concerned that the Federal Reserve might choose to raise interest rates by three-quarters of a percentage point in the coming months. Fed Chair Jerome Powell allayed those concerns, saying the central bank was “not seriously considering” such an increase.

The central bank also announced that it will start reducing its massive $9 trillion balance sheet, which consists mainly of Treasury and mortgage bonds, starting on June 1.

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When Powell said the Fed was not considering a massive increase in short-term interest rates, it sent a signal to investors to send stock prices higher and bond yields lower. A slower pace of interest rate increases could mean less risk of the economy turning into recession, as well as less downward pressure on prices for all types of investments.

But reducing the odds of a rally by 0.75% does not mean the Fed has steadily and sharply raised interest rates while struggling to tame inflation. Economists at BNP Paribas still expect the Fed to continue raising the federal funds rate until it reaches a range of 3% to 3.25%, up from zero to 0.25% earlier this year.

“We do not believe this was President Powell’s intention,” economists at BNP Paribas wrote in a report, citing Wednesday’s market glee, “and we believe we may see Fedspeak seek to re-tighten financial conditions.”