Dow Slides More Than 1,000 Points as Investors Reassess Fed Comments
U.S. stocks fell sharply, led by technology and other growth stocks, as investors assessed the implications of Federal Reserve’s most aggressive tightening of monetary policy in more than two decades.
The S&P 500 dropped 3.7% as losses accelerated in midday trading Thursday. The tech-focused Nasdaq Composite Index fell 4.9%, and the Dow Jones Industrial Average retreated 3.2%, or 1,080 points. All three indexes are on track to erase Wednesday’s gains.
In the bond market, the yield on the benchmark 10-year Treasury note rose to 3.084%, from 2.914% Wednesday. Bond prices and yields move in opposite directions. On Wednesday, bonds prices staged a rebound alongside stocks before losing steam.
“The Fed is reducing liquidity in the markets and that’s driving up volatility, and so this could be our new normal here for a bit until the Fed gets inflation under control and changes the policy,” said John Ingram, chief investment officer and partner at Crestwood Advisors.
The pullback came one day after major U.S. stock indexes soared, with the Dow climbing more than 900 points, its biggest one-day gain since 2020. On Wednesday, central bank officials approved a half-percentage-point interest rate increase, lifting the federal-funds rate to a target range between 0.75% and 1%.
But it was Fed Chairman
Jerome Powell
who initially energized markets after he said officials weren’t actively considering raising rates by three-fourths of a percentage point. He instead indicated that additional half-point increases could be warranted at coming meetings.
Mr. Powell’s comments offered relief to investors who had become increasingly fearful that the Fed could raise interest rates too far, too fast and eventually tip the economy into a recession.
“The market yesterday was a relief rally,” said
Seema Shah,
chief strategist at Principal Global Investors. By Thursday, she said, the realities of a more challenging environment for stocks were starting to settle in. Though she said she believes inflation has peaked or is close to peaking, other macroeconomic considerations will continue to weigh on investors and the path of interest rates, she said.
Even with a larger interest-rate increase off the table in the coming months, investors are still facing the most aggressive tightening of U.S. monetary policy since 2000—the last time the central bank last raised rates by a half-point.
Many investors are now questioning how high the Fed might raise rates over the next two years amid soaring inflation and how that might ripple across the economy and corporate profits.
“It’s like when we all take medication, it’s got to build up in your system and these Fed-fund rises always have a lag time,” said Tim Horan, co-chief investment officer of fixed income at Chilton Trust.
“Meanwhile, the market pricing in so much more is a tightening of financial conditions that have a knock-on effect on the real estate market, mortgages. That’s getting some of the Fed’s job done until that medication builds up enough that it really becomes the decisive ‘slay the dragon moment.’”
On Thursday, those jitters were seen across the market. Growth stocks were particularly hard hit. Chip makers
and
all declined at least 4.3%. Megacap technology stocks also pulled back, with
falling 6.3% and
declining 6.7%.
Higher interest rates can diminish the allure of technology stocks by reducing the value that investors place on their future earnings. Higher yields in general also boost the attractiveness of fixed-income products versus riskier assets such as stocks.
tumbled 16% after the online marketplace released guidance below expectations for the current quarter.
lost 10% after cutting guidance on impacts from the war in Ukraine.
Shares of
also slid, losing 21%, after the online home goods retailer posted a bigger-than-expected quarterly loss.
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