A sharp sell-off pushed the Dow Jones Industrial Average lower by more than 1,000 points on Thursday, wiping out gains from Wall Street’s biggest rally in two years, as worries grow that the Federal Reserve will raise interest rates in its fight against inflation. is using. Derail the economy.
The benchmark S&P 500 fell 3.6%, its biggest loss in nearly two years, a day after posting its biggest gain since May 2020. The Nasdaq fell 5%, its worst drop since June 2020. The loss index by the Dow and others offset gains from the day before.
“Yesterday’s sharp rally was not rooted in reality, and today’s dramatic selloff is a reversal of that false enthusiasm,” said Ben Kirby, co-head of investment at Thornberg Investment Management.
Wall Street’s breakneck day-to-day reversal reflects investor uncertainty and unease about the threats facing the economy, starting with inflation at its highest level in four decades, and how effective the Federal Reserve’s bid is. . Increase in interest rates will raise prices.
On Wednesday, the Federal Reserve announced a widely expected half-cent increase in its short-term interest rate. Shares rose after the move, but after Fed Chair Jerome Powell reassured investors that the central bank was not considering a more aggressive, three-quarter point rate hike, as the Fed continues with further rate hikes. That is, as bond yields rose sharply. coming months.
But the relief that Powell’s remarks brought to stock investors disappeared on Thursday. Shares fell and bond yields rose. The yield on the 10-year Treasury note rose to 3.04%. An increase in yields will certainly put upward pressure on mortgage rates, which are at their highest level since 2009.
Investors remain uneasy about whether the Fed can do enough to tame inflation without propelling the economy, which is showing signs of recession, into a recession. Besides high inflation and rising interest rates, investors are grappling with uncertainty over supply chain disruptions and geopolitical tensions.
“The biggest issue is that there are a lot of moving parts and the unanswered question is to what extent the Fed’s attempt to reduce inflation will result in an economic slowdown and perhaps a recession,” said Terry Sandven, chief equity strategist. US Bank Wealth Management.
The S&P 500 fell 153.30 points to 4,146.87, while the Nasdaq fell 647.16 points to 12,317.69. The Dow closed down 1,375 points before closing down 1,063.09 points, or 3.1%, at 32,997.97.
Shares of smaller companies also fell sharply. The Russell 2000 fell 78.77 points, or 4%, to 1,871.15.