Dow Jones and Nasdaq fall sharply as stock market adjusts to interest rate troubles
The Fed raised rates by half a percentage point on Wednesday afternoon, and some investors believed the central bank would act cautiously thereafter on fears of an economic slowdown. This led to a huge but short-lived stock market rally, with the Dow Jones closing 932 points, or 2.8%.
Those gains evaporated on Thursday, however, amid renewed fears about the economy’s ability to regain momentum after contracting in the three months of 2022.
Millions of people retired early during the pandemic. But many of them are now re-entering the workforce, the data shows.
Tech stocks fell sharply. Apple fell 5.6%, Google 4.8% and Amazon 7.6%. (Amazon founder Jeff Bezos owns The Washington Post.)
Twitter was one of tech’s outliers, closing nearly 2.7% on word that Elon Musk had lined up more than $7 billion in funding from Silicon Valley investment firms Andreessen Horowitz and Sequoia. Capital, Oracle founder Larry Ellison and others. The infusion marked a significant validation of the social media platform billionaire’s lawsuit and increased the likelihood that the deal would go through. But Tesla shares slipped 8.3% as Musk’s focus on Twitter could hurt his electric car business.
Risk-averse investors also retreated against cryptocurrencies. Bitcoin and Ethereum each fell more than 8%.
“Thursday’s stock selloff suggests Wednesday’s market action was a relief rally,” said Zach Stein, chief investment officer at asset management firm Carbon Collective. “We are not off the hook yet, as there is still too much uncertainty about how Federal Reserve actions will rein in inflation without causing a recession. The concerns that triggered the stock market correction over the past few months, such as inflation, the war between Russia and Ukraine, and soaring oil prices, are still present and have yet to be resolved.
The Dow Jones ended the day down 3.1% to end at 32,997, down from its January high of 36,800. The S&P 500 index fell 153 points, or 3.6%. , while the tech-heavy Nasdaq was the biggest loser, returning almost 650 points, or 5%.
It was the worst trading session for all three major indices in 2022, and the worst day for the Dow and Nasdaq since 2020.
Traders looking for safer bets pushed the yield on 10-year Treasury bills to 3.04%, its highest level since 2018.
The wild mid-week swings, experts said, signified the challenges facing the economy as it tries to emerge from the coronavirus pandemic. Early in the pandemic, stimulus payments and interest rate cuts flooded the economy with cash and credit to support struggling households and businesses.
Now the federal government is employing a very different strategy, cutting federal aid and raising rates. This is pulling the economy in different directions, with inflation soaring and growth slowing, but hiring remains robust.
Some of these forces have helped bring about 1.5 million retirees back into the U.S. workforce over the past year, according to a Labor Department analysis, which has loosened the hiring market somewhat and tempered wage gains, although average hourly earnings in the private sector continued to edge upwards.
The Fed’s interest rate hike on Wednesday – the second of seven scheduled for 2022 – could make borrowing more expensive for businesses and households. This is supposed to ease inflationary pressures. But Fed officials are trying to raise interest rates at such a pace that it doesn’t completely stifle economic growth, a difficult balance to strike. If the economy cools too quickly, it could slip into a recession, generally defined as two consecutive quarters of decline.
These were among the concerns that led investors to sell stock market investments on Thursday.
“Soft landings are hard to achieve in monetary policy,” said Nancy Davis, founder of asset management firm Quadratic Capital Management.
The Labor Department is expected to release a new jobs report on Friday that investors hope will show slowing hiring and wage growth. U.S. employers posted a record 11.5 million job openings in March, and 4.5 million workers left or changed jobs, reflecting fierce demand for talent and an emboldened attitude among workers.
Fed Chairman Jerome H. Powell cited the “extremely, historically” tight labor market as one of the main reasons he says the economy can withstand higher interest rates without crashing. recession.
“To stabilize the market, we need to see a weaker jobs report [on Friday]said Chris Rupkey, chief economist at market research firm FWD Bonds. “The market needs something, anything in this report, maybe it’s wages, that will tell the Fed to stop raising rates or at least slow the pace of rate hikes. .”
Domestic markets have also thrown a spanner in the plans. April was the worst month for the S&P 500 since March 2020 and capped its worst start to a calendar year since World War II.
Much of this, experts say, is due to the ripple effects of Russia’s invasion of Ukraine. The war has sent shockwaves through energy markets as Western sanctions crumble on Kremlin oil exports and alter the global market of who can buy energy from whom.
Gas prices in the United States have jumped since the beginning of the conflict. RBOB, the pre-market gasoline benchmark, traded at $3.67 as of Thursday’s market close, up 90 cents a gallon since Russian forces entered Ukraine on Feb. 24.
The sharp rise in gasoline prices accounted for more than half of monthly inflation in March, according to federal data.
Investors need to signal to the Fed in a not-so-subtle way that they prefer to keep interest rates low to stabilize Wall Street, even in the face of consumer price inflation that has impacted corporate earnings.
E-commerce marketplaces Etsy and eBay each fell 17% and 12%, respectively, on Thursday as lower consumer spending, energy costs and supply chain issues slashed corporate profits.
Retailers Walmart and Target each gave back about 2%, but were slightly more insulated from those costs.
Rachel Siegel and Abha Bhattarai contributed to this report.