U.S. stocks sank on Thursday as investors weighed the potential economic costs of the Federal Reserve’s ongoing fight against inflation.
The S&P 500 fell more than 3.8% as the index reached its worst day of the year. He also erased profits after rising 1.5% on Wednesday. The Nasdaq Composite was down 4.6%, down 32% this year on an intraday basis. The Dow fell more than 900 points, or more than 3%, and 10-year bond yields fell to about 3.34%.
Shares, which initially rose after the Fed’s first increase in the interest rate from 75 basis points since 1994 on Wednesday, turned after traders assessed the potential that the central bank’s actions to reduce inflation will cause a deeper decline in economic activity.
The Federal Open Market Committee’s (FOMC) summary of economic forecasts (SEP) on Thursday showed the commission itself now sees a less rosy economy as it continues to raise interest rates. The FOMC now expects the unemployment rate to reach 3.7% by the end of this year (compared to 3.5% in March) and that real gross domestic product will grow by only 1.7% (compared to the 2.8% increase seen before). ). The Fed has also raised its forecast for core inflation at the end of the year and its expectations of where the Fed’s interest rate will end in 2022.
The lowered growth outlook, coupled with a more aggressive path to impending interest rate hikes, seems to justify some experts’ fears that the Fed’s window for a soft landing is almost or has already expired. Fed Chairman Jerome Powell suggested on Wednesday that raising the interest rate by 50 or 75 basis points looks the most at the next central bank meeting in July. Although the Fed still predicts that GDP growth will end each of 2022, 2023 and 2024 in positive territory, some speculate that this may be overly optimistic.
“The Economic Summary Summary (SEP) and President Powell’s spokesman highlighted a committee that sees an ever-narrow path to a soft landing, while maintaining it as a baseline,” said Matthew Lucetti, chief economist at Deutsche Bank. . “The statement removed the reference to maintaining a strong labor market, as inflation is under control and the SEP predicts that the unemployment rate will eventually rise by about half a percentage point. We continue to expect that the Fed will have to act more aggressively than signaled [Wednesday’s] meeting and that this tightening will cause a recession in 2023, which will lead to a more significant increase in unemployment. “
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Powell, for his part, said Wednesday that the Fed is not looking for a recession to meet the central bank’s goals of reducing inflation. However, whether such an outcome could ultimately be avoided as a by-product of the Fed’s actions remains a question of markets and a question that is likely to keep volatility at stake, some strategists said.
“Clear and convincing evidence of lower inflation is yet to materialize … Further volatility is likely, as the Fed is heavily dependent on the data,” said Julian Emanuel, Evercore’s senior managing director, in a note. “Ideally, this will include stocks that show signs of capitulation, the bottom line is being laid.”
“Until further necessary and sufficient signs (turning the price of gasoline and VIX [spikes above 40] with a large volume of stocks) from the “a” bottom, the “bottom” does not have to appear, we maintain a balanced exposure, “he added.
NEW YORK, NEW YORK CITY – JUNE 14: Traders work on the floor of the New York Stock Exchange (NYSE) on June 14, 2022 in New York. The Dow rose in morning trading after falling more than 800 points on Monday, sending the market into bearish territory as fears of a possible recession emerged. (Photo by Spencer Platt / Getty Images)
In motion
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Shares of Twitter (TWTR) fell on Thursday afternoon, erasing earlier gains after the long-awaited joint meeting of Elon Musk with employees of the social media company. Musk reportedly discussed the goal of increasing Twitter’s user base to 1 billion and suggested that both subscriptions and advertising sales would be key to the company’s revenue growth in the future, Bloomberg reported. familiar with the issue. However, it is reported that he also did not ask directly during the meeting whether he had committed to complete the acquisition of the company.
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Shares of Robinhood (HOOD) were on the verge of falling again on Thursday amid the recent fall in cryptocurrency prices, while Wall Street companies adopted an increasingly pessimistic tone of shares on the online trading platform due to heightened regulatory concerns. Atlantic Equities downgraded the stock rating to Underweight from neutral on Wednesday and lowered its target price to the lowest price on Wall Street at $ 5 per share, according to Bloomberg.
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Shares of Adobe (ADBE) fell ahead of the company’s earnings report for the second fiscal quarter, which is due to be released on Thursday after the market closed. Consensus analysts see that the software company provides adjusted earnings of $ 3.31 per share with revenue of $ 4.35 billion.
This post will be updated.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.
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