Markets tanked on Thursday as recession fears surged once 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 a bid to combat surging inflation.
Stocks fell after rebounding a day earlier: The Dow Jones Industrial Average lost 2.1%, around 700 points, while the S&P 500 dropped 2.8% and the tech-heavy Nasdaq shed Composite 3.3%.
Investor sentiment took a hit from rising recession fears with investors concerned that the Fed won’t be able to achieve a soft landing as it aggressively hikes 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, with Fed Chair Jerome Powell hinting that a similarly large increase is under consideration for the next meeting in July.
As the Fed scrambles to fight inflation, which remains at 41-year highs, it greatly “raises the risk of a recession because you’re bringing forward rate hikes even faster,” Morgan Stanley chief U.S. equity strategist Michael Wilson told CNBC.
Consumer and Tech stocks were among the hardest-hit on Thursday: Tesla, Netflix and Amazon all saw shares drop by 3% or more, while travel stocks like Delta and United Airlines also fell.
Rates on government bond yields, meanwhile, continued to surge higher as stocks tanked: The 10-year Treasury note spiked above 3.4%, up from around 2.8% last month.
The Dow fell below the 30,000 mark, hitting its lowest level so far in 2022 amid the ongoing stock market selloff.
“After a brief respite from the selling on Wednesday, stocks are right back in the red so far this morning, and a host of factors are weighing on sentiment,” says Vital Knowledge founder Adam Crisafulli. “The mindset of the market is extremely negative – all rallies are considered an opportunity to sell stocks further as a recession is thought to be inevitable.”
What To Watch For:
“The Fed needs tighter financial conditions and for the economy to cool, so supersized hikes should be expected over the next few meetings,” says Edward Moya, senior market analyst at Oanda. if the Fed continues to hike rates aggressively through the end of the year as it looks to get inflation under control, that could be the “tipping point to sending this economy into a recession.”
Dow Jumps 300 Points After Powell Says Fed Could Hike Rates By 75 Basis Points Again In July (Forbes)
Fed Authorizes Biggest Interest Rate Hike In 28 Years, As Experts Worry Its Fight Against Inflation Will Spark Recession (Forbes)
Here’s How Markets Reacted Last Time The Fed Hiked Rates By 75 Basis Points (Forbes)
Mortgages Surge Past 6% And Hit Their Highest Level Since 2008: Housing Market Could ‘Torpedo’ U.S. Economy, Expert Warns (Forbes)