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

U.S. stocks dropped sharply early Thursday, more than erasing the bounce seen the previous session following the Federal Reserve’s largest rate hike since 1994, as worries about the economic outlook moved center stage.

What’s happening
  • The Dow Jones Industrial Average

    dropped 659 points, or 2.1%, to 30,009.

  • The S&P 500

    shed 94 points, or 2.5%, to 3,696.

  • The Nasdaq Composite

    was down 301 points, or 2.7%

On Wednesday, the Dow rose 304 points, or 1%, while the S&P 500 gained 1.5% as the indexes snapped a bruising five-day losing streak. The Nasdaq Composite ended with a gain of 2.5%.

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

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

  • Bitcoin

    fell another 5.7% to trade near $21,225.

  • Oil futures fell, with the U.S. benchmark

    down 1% to trade near $114.20 a barrel. Gold futures

    rose 0.6% to $1,830 an ounce.

  • The Stoxx Europe 600

    dropped 2.1%, while London’s FTSE 100

    tumbled 2.8%.

  • The Shanghai Composite

    ended 0.6% lower, while the Hang Seng Index

    dropped 2.2% and the Japan’s Nikkei 225

    rose 0.4%.

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