MAY 5, 2022
A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 5, 2022. REUTERS/Brendan McDermid
Stocks plunged Thursday, wiping out much of gains from the previous session’s massive rally.
In late morning trading, the Dow Jones industrial average fell more than 1,000 points, or 2.9 percent. The S&P 500 index lost 145 points, or 3.4 percent. The tech-heavy Nasdaq was the big loser, giving back 583 points for 4.5 percent.
Stocks saw a late-afternoon surge Wednesday after the Federal Reserve announced that it would raise interest rates by half a percent. Though it marked the biggest jump since 2000 and Fed Chair Jerome H. Powell said comparable increases were “on the table,” investors seemed relieved after he said the board had not seriously considered going any higher.
The Dow closed up more than 932 points, or 2.8 percent. The S&P 500 and Nasdaq composite index soared 3 percent and 3.2 percent, respectively.
Thursday has been a much different story. Tech stocks that powered many of the indexes slumped: Apple fell 3.8 percent, Google lost 4.8 percent and Amazon dropped 6.7 percent. (Amazon founder Jeff Bezos owns The Washington Post.)
Risk-averse investors backed off cryptocurrencies. Bitcoin and Ethereum each fell more than 5 percent. Traders looking for safer bets pushed up the 10-year Treasury note by 3 percent.
Brent crude climbed 0.92 percent, trading at $111.15 a barrel.
“The market is way too optimistic about the Fed’s ability to tame inflation,” said Nancy Davis, founder of asset management firm Quadratic Capital Management. “The Fed is hiking aggressively into a weakening economy. They can raise rates as much as they want — rate hikes don’t put more truckers on the roads.”
Investors have worried that Powell and the Fed would seek to move more aggressively on rate hikes, raising fears of the economy edging toward a recession and stagflation, a period of high inflation and slow growth.
The U.S. economy unexpectedly contracted 1.4 percent in the first quarter, according to federal data. A recession is defined as two consecutive quarters of contraction.
Faced with soaring prices and a hot job market with record numbers of job openings, the Fed is betting that a steady series of hikes will slash inflation, cool the economy and get the coronavirus recovery on more sustainable footing, at a time when much uncertainty looms in the global economy. Russia’s invasion of Ukraine has driven up energy prices, and covid-19 shutdowns in China have triggered a new wave of supply chain snarls, both threatening to make the Fed’s job much harder.
Domestic markets have also thrown a wrench in the plans. April was the worst month for the S&P 500 since March 2020 and capped its worst start to the calendar year since World War II.
“Whatever more hawkish moves the [Fed] had contemplated for today, the stock market rout the last week may have led them to a more measured, gradual pace of rate hikes,” Chris Rupkey, chief economist at market research firm FWD Bonds, said in a Wednesday note. “The trick is to tighten financial conditions, but not be too aggressive with too many rate hikes that precipitate a disorderly market meltdown that destroys business and consumer confidence.”
Courtesy/Source: Washington Post