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Shares fell on Thursday – as the Dow Jones index fell more than 1,000 points – after investors were again worried about major economic indicators, which raised fears of a possible recession. The tech Nasdaq was hit particularly hard, falling 5 percent.
The sell-off was a sharp reversal of wealth after markets reported big gains on Wednesday, a blow caused by temporary confusion over the Federal Reserve’s approach to raising interest rates.
The Fed raised interest rates by half a percentage point on Wednesday afternoon, and some investors believed the central bank would act cautiously afterwards amid fears of an economic slowdown. This led to a huge but fleeting growth in the stock market, with the Dow Jones closing at 932 points, or 2.8 percent.
These gains evaporated on Thursday amid renewed fears about the economy’s ability to regain momentum after shrinking in the three months of 2022.
Technology stocks, which drove many of the indexes, fell: Apple 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 have given up cryptocurrencies. Bitcoin and Ethereum fell more than 8 percent.
“The sale of shares on Thursday suggests that … Wednesday’s market action was a relief,” said Zach Stein, chief investment officer at asset management firm Carbon Collective. “We are not out of the woods yet, because there is still too much uncertainty about how the actions of the Federal Reserve will curb inflation without causing a recession. The worries that have caused the stock market to adjust over the past few months, such as inflation, the war between Russia and Ukraine and rising oil prices, are still with us and have not yet been resolved.
The Dow ended the day down 3.1 percent to 32,997. The S&P 500 sank 153 points, or 3.6 percent, while the tech Nasdaq was the biggest loser, returning nearly 650 points, or 5 percent.
Traders looking for safer bets have raised the yield on 10-year government securities to 3.04%, the highest estimate since 2018.
The wild fluctuations in the middle of the week, experts said, mean the challenges facing the economy as it tries to emerge from the coronavirus pandemic. In the early days of the pandemic, stimulating payments and lower interest rates flooded the economy with cash and credit to support troubled households and businesses.
Now the federal government is using a much different strategy, limiting federal aid and raising rates. This is pulling the economy in different directions, as inflation rises and growth slows, but employment remains stable.
Some of these forces have helped bring about 1.5 million retirees back to the U.S. labor market in the past year, according to a Labor Department analysis, somewhat loosening the hiring market and limiting profits, despite average hourly income in the private sector. continue to increase. edge up.
The Fed’s interest rate hike on Wednesday – the second of seven projected for 2022 – could make loans more expensive for corporations and households. This should ease inflationary pressures. But Fed officials are trying to raise interest rates so fast that it doesn’t completely stifle economic growth, making it difficult to strike a balance. If the economy cools down too quickly, it could fall into a recession, which is usually defined as two consecutive quarters of decline.
These were among the concerns that led investors to sell off investments in the stock market on Thursday.
“Soft landing is difficult to do in monetary policy,” said Nancy Davis, founder of asset management company Quadratic Capital Management.
“In order to stabilize the market, we need to see a weaker report on jobs [on Friday]said Mark Rupki, chief economist at market research firm FWD Bonds. “The market needs something, everything in this report, maybe wages, that will tell the Fed to stop raising interest rates or at least slow down of interest. “
Domestic markets have also thrown a wrench into the plans. April was the worst month for the S&P 500 since March 2020 and ended the worst start to the calendar year since World War II.
Rachel Siegel contributed to this report.
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