US stocks plummeted on Thursday as investors weighed in on the potential economic costs of the Federal Reserve’s ongoing fight against inflation.
The S&P 500 fell 3.25% to 3,666.77, its lowest level since December 2020. It also wiped out gains after rising 1.5% on Wednesday. The Nasdaq Composite fell more than 4%, lowering the index by more than 30% during the year to date. The Dow plunged 741 points, or 2.4%, to close below 30,000 for the first time since January 2021.
Shares, which initially moved higher after the Fed’s first 75-point rate hike since 1994 on Wednesday, were rotated as traders assessed the potential that central bank moves to reduce inflation would trigger a deeper fall in economic activity.
The Federal Open Market Committee’s (FOMC) economic projections summary (SEP) on Thursday showed that the committee itself now sees a less optimistic economy as interest rates continue to rise. The FOMC now predicts that the unemployment rate will stand at 3.7% by the end of this year (compared to the 3.5% rate in March) and that real gross domestic product will increase by only 1, 7% (compared to the 2.8% increase observed above). The Fed also raised its forecast for the underlying inflation rate at the end of the year and its expectation of where the rate of Fed funds will end in 2022.
The shrinking growth outlook, coupled with a more aggressive trajectory in expected interest rate hikes, seemed to vindicate the concern of some experts that the Fed’s window to achieve a “soft landing” is almost or already it had happened. Fed Chairman Jerome Powell suggested on Wednesday that a rise in interest rates by 50 or 75 basis points seemed more like the next central bank meeting in July. While the Fed still predicts that GDP growth will end in positive territory every 2022, 2023 and 2024, some suggested that this could be too optimistic.
“The Summary of Economic Projections (SEP) and President Powell’s press release highlighted a committee that sees an increasingly narrow path to a smooth landing, while keeping it as a baseline,” wrote Matthew Luzzetti. chief US economist at Deutsche Bank, in a note. . “The statement removes the reference to maintaining a strong labor market as inflation is brought under control and the SEP predicts that the unemployment rate will eventually rise by about half a percentage point. We continue to anticipate that the Fed will have to move more aggressively than signaled a [Wednesday’s] meeting and that this hardening will trigger a recession in 2023 that will lead to a more material increase in the unemployment rate. “
The story goes on
Powell, meanwhile, said Wednesday that the Fed was not looking for a recession to meet the central bank’s goals of reducing inflation. However, whether this result is ultimately avoidable as a by-product of the Fed’s moves remains a matter for markets, and will likely keep volatility at stake, some strategists said.
“The ‘clear and convincing’ evidence of the moderation of inflation has not yet materialized … There is likely to be more volatility with the Fed which is firmly dependent on the data,” said Julian Emanuel, senior general manager. of Evercore, on a note. “Ideally, this will include actions that reflect signs of capitulation, the foundations are being laid for a fund.”
“Even more necessary and sufficient signals (change in price of petrol and VIX [spikes above 40] in a significant stock volume) of a fund “a”, does not necessarily appear “the” fund, we maintain a balanced exposure, “he added.
NEW YORK, NEW YORK – JUNE 14: Traders work on the floor of the New York Stock Exchange (NYSE) on June 14, 2022 in New York City. The Dow rose to trading on Monday morning after falling more than 800 points on Monday, sending the market into bearish territory amid fears of a possible recession. (Photo by Spencer Platt / Getty Images)
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Shares of Twitter (TWTR) fell on Thursday afternoon, erasing previous gains after Elon Musk’s long-awaited meeting with employees of the social media company. Musk spoke of the goal of increasing Twitter’s user base to 1 billion users and suggested that both subscription and advertising sales would be key to the company’s revenue growth in the future. , Bloomberg reported, citing people familiar with the matter. However, it was reported that he also did not address directly during the meeting whether he had promised to complete his acquisition of the company.
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Shares of Robinhood (HOOD) fell again on Thursday amid a recent fall in cryptocurrency prices, and as Wall Street companies reached an increasingly pessimistic tone on the shares of the online trading platform increasing regulatory concerns. Atlantic Equities downgraded Neutral’s underweight shares on Wednesday and lowered its target price on Wall Street to $ 5 a share, Bloomberg data showed.
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Shares of Adobe (ADBE) declined ahead of the company’s second fiscal quarter earnings report, which will be released on Thursday after the market closed. Consensus analysts see the software company offering adjusted earnings of $ 3.31 per share with revenue of $ 4.35 billion.
This post will be updated.
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Emily McCormick is a Yahoo Finance journalist. Follow her on Twitter.
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