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It’s turning into a bad day on Wall Street, with stocks heading for their worst day of the year.
The deep cuts come a day after the Federal Reserve raised interest rates by half a percentage point and said further rate hikes of a similar magnitude are on the table, as the central bank intensifies its fight against persistently high inflation.
The session marks a stunning turnaround from Wednesday’s relief rally, when investors initially cheered that Fed Chairman Jerome Powell ruled out a rate hike of more than half a percentage point to that time.
But investors are still bracing for an aggressive response from the Fed, and they fear the central bank could tip the economy into a deep recession in its quest to bring down inflation.
“I think we have to prepare for a volatile market,” said Savita Subramanian, head of US equities and quantitative strategy at Bank of America Securities.
Subramanian said markets are adjusting to a new environment of higher interest rates after enjoying record low rates for years.
“I mean, over the last 30 or 40 years, we’ve seen rates slowly drop to zero, and now we’re embarking on the opposite of that,” she said.
The Fed’s rate hikes come at a time of deep uncertainty about the global economy as Russia’s invasion of Ukraine continues and China is in the midst of containment measures to stem a coronavirus outbreak. COVID.
The Dow Jones fell more than 1,100 points by midday Thursday, while the S&P 500 was down more than 3% and the Nasdaq more than 4%.
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A very bad year for the markets
The falls come amid an ugly year for the markets.
The Fed wants to stage a “soft landing” for the US economy, raising rates just enough to calm inflation without triggering a recession.
Powell thinks the Fed can do it, but investors aren’t so sure, leading to wild swings.
As throughout the year, tech stocks were among the biggest decliners on Thursday.
Netflix fell more than 6%, while Amazon fell more than 7%.
Higher interest rates have put pressure on high-growth technology stocks in particular. They are more dependent on debt and their future income is worth less in times of high inflation.
Bonds were also hit hard on Wednesday, with the 10-year Treasury yield trading above 3%, its highest level since 2018.