The Fed raised interest rates by half a percentage point on Wednesday afternoon, and some investors believe the central bank will move cautiously after that due to concerns about economic slowdown. That led to a big, but quick, rally in the stock market, with the Dow Jones closing up 932 points, or 2.8 percent.
But those gains evaporated on Thursday amid renewed concerns about the economy’s ability to regain momentum after contracting in the three months of 2022.
Technology stocks that led many indexes fell: Apple shares fell 5.6 percent, Google lost 4.8 percent, and Amazon fell 7.6 percent. (Amazon founder Jeff Bezos owns The Washington Post.)
Risk-averse investors support cryptocurrencies. Both Bitcoin and Ethereum are down more than 8 percent.
“Thursday’s stock sell-off suggests that … the market action on Wednesday was a comforting recovery,” said Zach Stein, chief investment officer at asset manager Carbon Collective. “We are still not out of the woods yet, as there is still a lot of uncertainty about how the Fed’s actions will tame inflation without causing a recession. Fears that have led to a stock market correction over the past few months, such as inflation and the Russia-Ukraine war And the rise in oil prices, is still with us and has not yet been resolved.”
The Dow Jones ended the day down 3.1 percent to end at 32,997. The Standard & Poor’s 500 Index fell 153 points, or 3.6 percent, while the big technology Nasdaq was the biggest loser, returning nearly 650 points, or 5 percent. cent.
Traders looking for safer bets raised the yield on the 10-year Treasury to 3.04%, the highest level since 2018.
Experts said the wild midweek volatility points to the challenges facing the economy as it tries to emerge from the coronavirus pandemic. In the early days of the pandemic, stimulus payments and interest rate cuts flooded the economy with cash and credit to support struggling households and businesses.
The federal government is now using a much different strategy, working to scale back federal aid and raise prices. This is pushing the economy in different directions, with inflation rising and growth slowing, but employment remains strong.
Some of these forces helped achieve recognition 1.5 million retirees are returning to the US labor market Over the past year, according to an analysis by the Labor Department, it has softened the employment market somewhat and reduced wage gains, although average hourly earnings in the private sector have continued to rise.
Fed interest rate hike Wednesday – the second of seven projected for 2022 – could make borrowing more expensive for businesses and households. This is supposed to relieve inflationary pressures. But Fed officials are trying to raise interest rates at a pace that does not completely stifle economic growth, a balance that is difficult to achieve. If the economy cools too quickly, it may fall into a recession, generally defined as two consecutive quarters of decline.
Those were among the concerns that prompted investors to sell their investments in the stock market on Thursday.
“Easy feats in monetary policy are hard to come by,” said Nancy Davis, founder of asset manager Quadratic Capital Management.
To stabilize the market, we need to see a weaker jobs report [on Friday]said Chris Robke, chief economist at market research firm FWD Bonds. “The market needs something, anything in this report, perhaps wages, that will tell the Fed to stop raising interest rates or at least slow the pace of price hikes.”
Local markets also threw a wrench into the plans. April was the worst month for the S&P 500 since March 2020 and capped the worst start to a calendar year since World War II.
Rachel Siegel contributed to this report.