Dow drops around 700 points as the rally after feeding turns

US stocks fell on Thursday, regretting the gains the day before as volatility continued to shake the market and investors focused on the risks ahead.

Major indices have noted large declines in 2022, as high inflation, rising interest rates and growing concern about the company’s profits and economic growth weaken investors’ risk appetite.

Shares rose on Wednesday after the central bank’s chairman Jerome Powell indicated that the central bank’s interest rate increase of 0.75 percentage points this week would not be normal. On Thursday, optimism fell and shares fell across the market.

The S&P 500 fell 3.2%, while the Dow Jones Industrial Average fell 2.3%, or about 704 points, to 29964. The Nasdaq Composite fell around 4% as the shares of major technology companies retreated. If the Dow industries approach below 30,000, it will be the first time since January 2021.

“I think markets are reassessing the market environment,” said Michael Sheldon, chief investment officer at investment advisory firm RDM Financial Group. “The outlook for growth and profits and inflation, at least over the next few months, is not so favorable, unfortunately.”

The Fed’s interest rate increase of 0.75 percentage points was the largest since 1994, but was in line with investors’ expectations while the central bank tried to tame high inflation.

Mr. Powell said that although the central bank is not trying to cause a recession, it became more difficult to achieve a so-called soft landing, where the economy slows down enough to curb inflation without going into a recession.

Some analysts said that investors will reconcile with the increasing risk of economic growth.

“I think this is the recognition that we can really be heading for a recession. I’m not sure it has filtered through the market until now,” said Altaf Kassam, Head of Investment Strategy for Europe, Middle East and Africa at State Street Global Advisors. .

Federal Reserve chief Jerome Powell said the central bank’s goal is to reduce inflation to 2%. On Wednesday, the Fed approved an interest rate increase of 0.75 percentage points, the largest interest rate increase since 1994. Photo: Elizabeth Frantz / Reuters

While Mr. Powell on Wednesday suggested that the “unusually large” interest rate increase would not be normal, he left the door open for a new increase of 0.75 percentage points as soon as next month.

Increases in interest rates of this magnitude can confuse investors if they feel that the Fed is driving too fast to stay ahead of inflation, said Aoifinn Devitt, Moneta’s chief investment officer. “It could lead to even more anxiety in the market,” she said.

The shares of the technology companies fell, with Nvidia, Amazon and Microsoft each falling at least 2.9%. Twitter shares fell 1.1%, returning to earlier gains after The Wall Street Journal reported that Tesla boss Elon Musk is expected to confirm that he wants to buy the social media company when he talks to its employees on Thursday. Tesla,

which increases the prices of some of their cars in the midst of rising costs, went down more than 7%.

Switzerland’s central bank surprised investors by raising interest rates for the first time in 15 years. The Swiss National Bank raised its key interest rate by 0.5 percentage points to a negative 0.25%, so that only the Bank of Japan among the major central banks in developed economies has not raised interest rates to curb inflation. Economists had expected that SNB would leave interest rates unchanged.

“This is the last hurdle that falls,” said Seema Shah, chief strategist at Principal Global Investors. “If we get the central banks that have been considered to be permanently dove raising interest rates, there is no doubt that there is a huge inflation problem in the global economy.”

On Thursday, the Bank of England raised its policy rate as expected to 1.25% from 1%, marking its fifth move in as many meetings, saying that larger moves may be needed to tame inflation.

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

The yield on the 10-year US government bond fell to 3.326% from 3.389% on Wednesday. Treasury yields, which move in the opposite direction of prices, help set interest rates on a range of consumer products, including mortgages and car loans.

Bitcoin fell 3.1% from 17:00 ET level on Wednesday to $ 21,008, according to CoinDesk, which set it on course to fall for the 10th day in a row. Cryptocurrencies have been hit by widespread economic concerns that hurt risky trades and concerns about selected projects and companies in the crypto ecosystem. Investors in cryptocurrency lender Celsius Network are unlikely to provide the company with more financing that could save the company, The Wall Street Journal reported on Thursday.

In the commodity markets, Brent oil, the international oil reference, changed little to $ 118.48 per barrel. The gold price rose 1.5 percent.

Shares fell abroad. The pan-continental Stoxx Europe 600 index fell 2.5%. In Asia, Hang Seng in Hong Kong fell 2.2%, while Japanese Nikkei 225 increased by 0.4%.

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


Photo:

justin lane / Shutterstock

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

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