Dow plunges 700 points as Fed rally evaporates amid fears recession is ‘inevitable’

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Topline

Markets fell on Thursday as recession fears rose again, with stocks reversing gains from the previous session when the Federal Reserve announced it would hike rates by 75 basis points, the biggest increase since 1994, in order to combat the surge in inflation.

Highlights

Stocks fell after rebounding a day earlier: The Dow Jones Industrial Average lost 2.4%, more than 700 points, while the S&P 500 fell 3.2% and the technology-heavy Nasdaq Composite fell 4.1%.

Investor sentiment has been hit by growing fears of a recession as investors fear the Fed may not be able to pull off a soft landing as it aggressively raises interest rates to bring down inflation.

Stocks mounted a small relief rally on Wednesday after the central bank raised interest rates by 75 basis points – the biggest increase in 28 years, Fed Chairman Jerome Powell hinting that a similar increase is under consideration for the next meeting in July.

As the Fed scrambles to fight inflation, which remains at a 41-year high, it “significantly increases the risk of recession because you’re pushing rate hikes even faster,” said Michael Wilson, Morgan Stanley’s chief U.S. equity strategist, to UKTN.

Consumer and technology stocks were among the hardest hit on Thursday: Tesla, Netflix and Amazon all saw their stocks fall 3% or more, while travel stocks like Delta and United Airlines also fell.

Rates on government bond yields, meanwhile, continued to climb as stocks tumbled: The 10-year Treasury rose above 3.4%, from around 2.8% last month. .

Surprising fact

The Dow Jones fell below 30,000, hitting its lowest level so far in 2022 amid the ongoing stock market selloff.

crucial quote

“After a brief respite from selling on Wednesday, stocks are back in the red so far this morning, and a host of factors are weighing on sentiment,” said Vital Knowledge founder Adam Crisafulli. “The market sentiment is extremely negative – any rallies are seen as an opportunity to sell more stocks as a recession is seen as inevitable.”

To monitor

“The Fed needs tighter financial conditions and a slowing economy, so expect big hikes in upcoming meetings,” said Edward Moya, senior market analyst at Oanda. If the Fed continues to hike rates aggressively through the end of the year as it seeks to rein in inflation, that could be the “tipping point to send this economy into a recession.”

Further reading

Dow jumps 300 points after Powell said the Fed could raise rates another 75 basis points in July (UKTN)

The Fed allows the biggest interest rate hike in 28 years, as experts fear its fight against inflation could trigger a recession (UKTN)

Here’s how markets reacted the last time the Fed raised rates by 75 basis points (UKTN)

Mortgage loans exceed 6% and reach their highest level since 2008: the housing market could “torpedo” the American economy, warns an expert (UKTN)

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