Dow drops over 600 points as post-Fed meeting gains evaporate

What’s driving markets

The Fed’s three-quarters of a percentage point interest rate hike on Wednesday could be followed by another hike of that magnitude in July, or a half-point increase, according to Fed Chair Jerome Powell at a press conference after the decision was announced. The Fed also cut its economic growth forecast and lifted its unemployment outlook while not going as far as to predict recession.

“Of course, the record 75bp rate hike decision isn’t helping credit and stock markets trading higher today, but most of the current sell-off seems to be coming from major worries that the Fed is willing to accept worsening economic conditions, in the shape of an upcoming recession alongside higher unemployment (like four decades ago), in its fight against the pressure brought by rising prices,” said Pierre Veyret, technical analyst at ActivTrades.

Analysts also drew attention to the fact that not only did Powell express concern about last week’s data showing U.S. consumer prices shooting up by 8.6% in the 12 months ending May, but he also noted rising inflation expectations, as measured by the University of Michigan’s consumer sentiment report.

“Inflation expectations data had unnerved committee members,” said Ryan Djajasaputra, economist at Investec. “Powell stated that the Fed needed to take this development seriously.”

See also: As Fed aggressively raises rates, here are 4 takeaways from Jerome Powell’s press conference

Treasury yields resumed a rise Thursday also, putting pressure on tech and other growth stocks most sensitive to rates. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.424%
up 5.7 basis points at 3.439%.

Meanwhile, the Swiss National Bank delivered a surprisingly large half-point rate hike Thursday, which buoyed the Swiss franc
USDCHF,
-2.15%,
while the Bank of England lifted rates by a quarter-point, with the central bank’s relatively cautious guidance sending the pound lower.

In U.S. economic data, construction started on new U.S. homes fell 14.4% in May, the Commerce Department said Thursday. The annual rate of total housing starts fell to 1.55 million last month from a revised 1.81 million in April. Economists polled by the Wall Street Journal expected housing starts to fall to a 1.68 million rate from April’s initial estimate of 1.72 million.

The Federal Reserve Bank of Philadelphia said Thursday that its gauge of regional business activity fell to -3.3 in June from 2.6 in the prior month, signaling the first contraction in factory activity since May 2020.

New filings for unemployment benefits fell by 3,000 last week to 229,000, but they remained close to a five-month high, possibly offering a sign that layoffs have ticked up from record-low levels.

Companies in focus

• Revlon Inc.
  REV,
  +20.32%
  said Thursday that it has voluntarily filed for bankruptcy. Shares were halted for news.

• Tesla Inc.
  TSLA,
  -4.36%
  is hiking its U.S. prices, as the electric vehicle maker battles rising aluminum costs and the global supply chain crisis. Shares 4.9%.

• Separately, Tesla CEO Elon Musk was expected to confirm his desire to own Twitter Inc.
  TWTR,
  +0.95%
  when he speaks to employees of the social-media company on Thursday, The Wall Street Journal reported. Twitter shares were up 0.6%.

Other assets

• The ICE U.S. Dollar Index
  DXY,
  -0.60%,
  a measure of the currency against a basket of six major rivals, fell 0.5%.

• Bitcoin
  BTCUSD,
  -2.54%
  fell another 5.7% to trade near $21,225.

• Oil futures fell, with the U.S. benchmark
  CL.1,
  -1.70%
  down 1% to trade near $114.20 a barrel. Gold futures
  GC00,
  +0.74%
  rose 0.6% to $1,830 an ounce.

• The Stoxx Europe 600
  SXXP,
  -2.18%
  dropped 2.1%, while London’s FTSE 100
  UKX,
  -2.79%
  tumbled 2.8%.

• The Shanghai Composite
  SHCOMP,
  -0.61%
  ended 0.6% lower, while the Hang Seng Index
  HSI,
  -2.17%
  dropped 2.2% and the Japan’s Nikkei 225
  NIK,
  +0.40%
  rose 0.4%.