Stocks on Wall Street plunged after a handful of central banks around the world followed the Federal Reserve and raised interest rates to thwart soaring inflation.
The Standard & Poor’s 500 index, already in a bear market (defined as at least 20% below its record high), closed down 123.22 points, or 3.25%, at 3,666.77. .
The Nasdaq, the first index to fall into bearish territory earlier this year, ended down 453.06 points, or 4.08%, at 10,646.10.
The Dow Jones ended down 741.46 points, or 2.4%, at 29,927.07, narrowly escaping a bear market, but analysts say it’s likely only a matter of time before that the Dow also falls.
“The S&P 500 and the Dow are often different over a short period of time, but over time they correlate well,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Taiwan’s central bank raised its benchmark discount rate by 12.5 basis points to 1.5% and lowered its outlook for economic growth for the year.
In Europe, the Bank of England raised its key rate by 25 basis points to 1.25%, while delivering more bitter news. He warned that inflation would rise to at least 11% this autumn (from 9% in April) when the energy bill cap is next lifted, and that the UK economy will contract by 0.3% this quarter. .
The shock was the Swiss National Bank, which raised its key rate to -0.25% from -0.75%, the first hike since September 2007.
This all follows the Fed’s 75 basis point hike in the key federal funds rate on Wednesday night. It was the biggest increase since November 1994, intended to raise borrowing costs to dampen demand and rein in the highest rate of consumer inflation in 40 years.
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Slowdown in the housing market
The housing market, which was hot during the pandemic era of near-zero rates, is reeling from the effects of rising US rates.
Housing starts in the United States fell 14.4% last month to an annualized rate of 1.55 million, the lowest in more than a year and the largest one-month decline since April 2020, according to government data. Construction applications also fell to 1.7 million annualized units, the lowest since September. These suggest pressure on housing construction as higher rates weigh on demand.
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Average long-term U.S. mortgage rates saw their biggest one-week rise in 35 years after the Fed’s oversized rate hike on Wednesday. The average 30-year fixed-rate mortgage rate jumped 55 basis points to 5.78% for the week ending Thursday, June 16, from 5.23%, according to Freddie Mac.
“To put that number into perspective, a $300,000 30-year fixed rate mortgage with a rate of 5.23% would cost a borrower about $1,653 per month (excluding other costs like taxes and insurance) said Jacob Channel, LendingTree senior economist. “That same loan would cost a borrower $1,756 at the current new average rate of 5.78%. That’s an additional $103 per month, $1,236 per year, and $37,080 over the life of a loan,” he said. -he declares.”
The actions of the affected airlines
Airlines, which were flying high on forecasts of strong summer travel plans, were grounded in fears that consumers will have to cut discretionary spending amid soaring inflation and slowing economic growth.
High oil prices also remain a headwind for airlines as inventories and refining capacity remain constrained. A barrel of WTI crude last rose around 1.4% to $116.92.
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The NYSE Arca Airline Index touched its lowest level since the summer of 2020 on Thursday. American Airlines fell to the lowest level since November 2020 and Southwest was trading near a two-year low. Delta and United Airlines lost more than 7% and 8% respectively.
Avelo said Thursday it was cutting fares to its 25 destinations by 50% “to help ease inflation for people in these uncertain times.”
Follow the 10-year Treasury bond
Even through this tumult, analysts are encouraging investors to hold on, saying markets will rebound. But it’s a matter of time, and no one knows when that time will come.
Brad McMillan, Chief Investment Officer for Commonwealth Financial Network, however, has some ideas on what to look for when trying to figure out when that time is right.
“The critical rate that helps determine equity valuations is the yield on the 10-year US Treasury,” he said. “As the Fed raises rates (and this has affected the markets), once the market sees the end of these rate hikes, the 10-year rate will start to fall, and that will probably mark the start of the recovery. of the stock market.”
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The yield on the benchmark 10-year Treasury traded up more than 15 basis points to 3.24%, after hitting an 11-year high earlier in the week, while the 30-year Treasury years slipped 12 basis points to 3.29%. The 2-year Treasury rate fell 17 basis points to 3.11%.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and sign up for our free Daily Money newsletter for personal finance tips and business news Monday through Friday mornings.
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