Dow plunges 1,000 points, erasing Wednesday's surge

Dow plunges 1,000 points, erasing Wednesday’s surge


New York
CNN Business

So much for the good feelings on Wall Street. U.S. markets fell sharply on Thursday, eviscerating all of Wednesday’s gains after the Federal Reserve’s announcement of plans to raise its benchmark interest rate appealed to investors.

Fed Chairman Jerome Powell helped reassure investors on Wednesday afternoon, saying future rate hikes above 50 basis points are “not something [Fed] is actively considering,” resulting in a bullish surge in the markets. The major indexes were all up around 3%, and the S&P 500 and the Dow Jones had their best days in nearly two years.

But investors woke up to a hangover from binge trading on Thursday, and markets were catapulted into the red as they digested more Fed news.

All of yesterday’s gains were wiped out by midday and the markets only got worse from there.

The Dow Jones fell 1,163 points or 3.4%, the S&P 500 fell 3.7% and the Nasdaq Composite fell 5.1% in afternoon trading.

Stocks are on course for their worst day of the year and the Nasdaq will likely see its biggest drop since June 2020.

“I’ve been in the markets for 25 years and I’ve never seen anything like it,” said Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence, a Wall Street and Federal Reserve research firm. “It’s violent, not just volatile.”

DiMartino Booth thinks the massive drop only makes sense if you classify yesterday’s surge as a meltdown “The markets were so close to rallying yesterday and there were probably a lot of people who were short and had to rush to cover, today is a backlash,” she said.

The rapid market swings indicate that equity markets still haven’t figured out what to do about the Fed, John Lynch, chief investment officer of Comerica Wealth Management, wrote in a note Thursday. The question they must answer, he said, is not easy: “How could technology and growth sustainably drive the market higher with the Fed’s acknowledgment of inflation and its commitment to higher rates?

Even without future interest rate hikes of 75 basis points, quantitative tightening poses a threat to economic growth and to markets that have grown accustomed to dovish Fed policy. “There may be some pain associated with going back to that, but the big pain is not dealing with inflation and allowing it to take hold,” Powell warned during his Wednesday afternoon press conference. .

Market declines like today’s are unusual and reminiscent of 2008 and 2009, said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research. But economic conditions are much stronger than they were at the start of the Great Recession, leaving analysts scratching their heads for a catalyst, he said.

So what changed between last night and today to make investors turn 180 degrees? “Tea leaves are hard to read right now,” Frederick said. “But it could be a sign of a market capitulation, where investors are panicking to the point of throwing in the towel.” The capitulation, he added, may also indicate that we have bottomed out in the market.

Big tech stocks led the losses on Thursday. Big tech is particularly vulnerable to rising rates because its promise of future innovation and subsequent revenue is valuable to investors.

Facebook parent Meta fell nearly 6%, Amazon fell 6.4% and Google parent Alphabet fell 5.3%.

“However, in all policy actions there are negative consequences, which hopefully are mitigated and less impactful than the issue being addressed,” wrote Rick Rieder, BlackRock’s Chief Investment Officer for global fixed income, in a note Wednesday. “The consequences we risk from tightening policies are a potential recession, potential job and wage losses, and clearly tighter financial conditions that will weigh on virtually all financial markets.”

E-commerce stocks also fell precipitously after reporting weak earnings for the first quarter of the year. Etsy fell almost 18% and eBay about 8%.

New economic data, meanwhile, showed that labor productivity fell 7.5% in the first quarter of 2022, its fastest decline since 1947.

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