Dow plunges more than 1,000 points on Wall Street’s worst day of the year

Fed Chairman Jerome Powell helped reassure investors Wednesday afternoon, saying future rate hikes greater than 50 basis points are “not something that [Fed] actively considering, “which led to a bullish increase in the markets. The major indices all grew by around 3%, and the S&P 500 and Dow had their best days in almost two years.

But investors woke up with an excessive hangover on Thursday, and markets fell in red as they further digested Fed news.

All of yesterday’s gains were erased by noon and the markets only got worse from there.

The Dow fell 1,120 points, or 3.3%, the S&P 500 fell 3.7%. The Nasdaq Composite fell 5.2 percent, the worst day since 2020.

“I̵[ads1]7;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 fleeting.”

DiMartino Booth believes the massive fall only makes sense if you classify yesterday’s wave as a merger. ,” she said.

Beware the 'melt-up:' Analysts say stocks may rise just before collapsing

The rapid market fluctuations indicate that the stock markets have still not figured out what to do with the Fed, wrote John Lynch, chief investment officer for Comerica Wealth Management, in a note on Thursday. The question they need to answer, he said, is not easy: “How can technology and growth sustainably lead the market higher with the Fed’s recognition of inflation and commitment to higher interest rates?”

Even without future interest rate hikes of 75 basis points, quantitative easing poses a threat to economic growth and to markets that have become accustomed to meeting Fed policies. “There may be some pain associated with getting back to it, but the big pain is not dealing with inflation and letting it get entrenched,” Powell warned during his news conference Wednesday afternoon.

Market declines such as today are unusual and reminiscent of 2008 and 2009, said Randy Frederick, CEO 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, and analysts are scratching their heads in search of a catalyst, he said.

So what changed between last night and today to get investors to turn 180 degrees? “The tea leaves are hard to read right now,” Frederick said. “But this could be a sign of market capitulation, where investors are so panicky that they throw in the towel.” Capitulation, he added, may also indicate that we have reached a market bottom.

Major technology stocks led losses on Thursday. Big tech is particularly vulnerable to rising prices because their promise of future innovation and subsequent earnings is valuable to investors.

The Facebook parent company Meta fell by almost 6.8%, Amazon fell 7.6%, and the Google parent company Alphabet fell 4.7%.

“In all political terms, however, there are negative consequences, which are hopefully subdued, and which are less effective than the problem being addressed,” Rick Rieder, BlackRock’s chief investment officer for global interest rates, wrote in a note on Wednesday. “The consequences we risk in policy tightening are potential recession, potential job losses and wages, and clearly tighter economic conditions that will weigh on virtually all financial markets.”

Why relief over the Federal Reserve may be short-lived

E-commerce stocks also fell sharply after reporting weak earnings for the first quarter of the year. Etsy fell by almost 17% and eBay fell by around 12%.

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

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