Dow closes below 30,000 as post-federal rally reverses

US stocks fell sharply on Thursday, taking the Dow Jones Industrial Average below 30,000 for the first time since January 2021 as volatility continued to rock the market.

Major indices have seen steep declines in 2022 as high inflation, rising interest rates and growing concerns about corporate earnings and economic growth reduce investors’ appetite for risk. Blue chips are down 18% this year, while the S&P 500 is down 23% and the tech-heavy Nasdaq Composite is down 32%.

Stocks rallied on Wednesday after Federal Reserve Chairman Jerome Powell signaled the central bank would continue to raise rates but suggested the size of Wednesday’s increase is unlikely to become commonplace. On Thursday, that optimism crumbled and stocks fell across the market as investors reassessed the risks ahead.

“The outlook for growth, earnings and inflation, at least over the next few months, is unfortunately not so favourable,” said Michael Sheldon, chief investment officer at investment advisory firm RDM Financial Group.

The S&P 500 fell 123.22 points, or 3.3%, to 3666.77. Dow Jones Industrialists fell 741.46 points, or 2.4%, to 29,927.07. Both indices ended at their lowest closing levels since December 2020.

The tech-focused Nasdaq Composite fell 453.06 points, or 4.1%, to 10646.10, its lowest close since September 2020.

The decline in the blue chip average could weigh on the mood of investors who had become accustomed in recent years to stocks seeming to go ever higher.

“It seems like anyone who was considering buying the dips, especially if we close below 30,000, could easily say, ‘You know what, I’m just going to wait for this one,'” said Carol Schleif, deputy chief investment officer. at BMO Family Office.

The Fed’s 0.75 percentage point rate hike was the biggest since 1994, but matched investor expectations as the central bank raced to get high inflation under control. Recent data showed consumer inflation in May hit its highest level in more than four decades.

Mr Powell said that even if the central bank did not try to cause a recession, it became more difficult to achieve a so-called soft landing, in which the economy slows down enough to dampen inflation without entering a recession. . Some analysts said investors are accepting the growing risks to economic growth.

“I think it’s the realization that we could really be heading into a recession. I’m not sure that has really crossed the minds of the market so far,” said Altaf Kassam, head of investment strategy for Europe, Middle East and Africa at State Street Global Advisors.

Federal Reserve Chairman Jerome Powell said the central bank’s goal was to reduce inflation to 2%. The Fed approved a 0.75 percentage point rate hike on Wednesday, the largest interest rate hike since 1994. Photo: Elizabeth Frantz/Reuters

Stocks fell across the board on Thursday, with each of the 11 S&P 500 sectors falling during the day. The energy group, the only sector in positive territory for 2022, recorded a drop of 5.6%.

Big tech stocks fell, with Microsoft shares falling 2.7%, Amazon shares 3.7% and Nvidia shares 5.6%.

Shares of Twitter fell 63 cents, or 1.7%, to $37.36 after Tesla Chief Executive Elon Musk addressed Twitter employees at a company meeting on Thursday about topics such as whether there would be any layoffs if he completes his planned takeover of the social media company. You’re here,

which is raising the prices of some of its cars amid rising costs, fell $59.70, or 8.5%, to $639.30.

While Mr Powell suggested on Wednesday that the “unusually large” rate hike would not become commonplace, he left the door open for another 0.75 percentage point hike as early as next month.

Interest rate hikes of this magnitude could destabilize investors if they believe the Fed is running too fast to outpace inflation, said Aoifinn Devitt, chief investment officer at Moneta. “That can lead to even more anxiety in the market,” she said.

The Swiss central bank surprised investors by raising interest rates for the first time in 15 years. The Swiss National Bank raised its key rate by 0.5 percentage points to minus 0.25%, leaving only the Bank of Japan among the major central banks in developed economies to fail to raise rates to control inflation. . Economists expected the SNB to leave rates unchanged.

“This is the last hurdle to fall,” said Seema Shah, chief strategist at Principal Global Investors. “If we get the central banks that have been seen as permanently accommodative rate hikes, it’s undeniable that there is a huge inflation problem in the global economy.”

The Bank of England on Thursday raised its key interest rate as expected to 1.25% from 1%, marking its fifth move in as many meetings, and said bigger moves may be needed to get inflation under control .

Weekly jobless claims data showed 229,000 Americans applied for jobless benefits in the week ended June 11. The labor market has been an area of ​​strength for the economy, but Fed officials have signaled that weaker employment numbers could be a necessary consequence of the central bank’s effort. to control inflation.

The yield on the benchmark 10-year US Treasury fell to 3.303% from 3.389% on Wednesday. Treasury yields, which move in the opposite direction to prices, help set rates on a variety of consumer products, including mortgages and auto loans.

Bitcoin fell for a 10th straight day, falling 4.6% from its level at 5 p.m. ET on Wednesday to trade at $20,682.61. Cryptocurrencies have been hit by broad economic concerns that are hurting risky trades and worries about certain projects and businesses in the crypto ecosystem. Investors in cryptocurrency lender Celsius Network are unlikely to provide the company with more funding that could bail out the company, The Wall Street Journal reported Thursday.

In commodity markets, Brent, the international oil benchmark, gained 1.1% to $119.81 a barrel. The price of gold rose 1.7%.

Stocks fell overseas. The pancontinental Stoxx Europe 600 index fell 2.5%. In Asia, Hong Kong’s Hang Seng fell 2.2%, while Japan’s Nikkei 225 gained 0.4%.

Wall Street stocks fell after a rally on Wednesday following the Federal Reserve’s interest rate decision.


Photo:

Justin Lane/EPA/Shutterstock

Write to Karen Langley at karen.langley@wsj.com and Will Horner at william.horner@wsj.com

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